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The Role of American Depositary Receipts in the Development of Emerging Equity Markets

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  • G. Andrew Karolyi

    (Fisher College of Business, Ohio State University)

Abstract

This paper finds that the growth and expansion of U.S. cross-listings by firms from emerging markets around the world facilitated an expansion of cross-border equity flows and overall development of their stock markets during the 1990s. However, these benefits have negative spillover effects; the capitalization and turnover ratios of local-market firms that do not pursue overseas listings decline as U.S. cross-listings in the form of American depositary receipts (ADRs) increase in size and scope. We investigate various possible sources of these negative spillovers and offer new evidence that the growth of ADRs neither facilitates nor hinders local-market development, but represent an outcome of poorly functioning local markets. Policy implications are discussed. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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  • G. Andrew Karolyi, 2004. "The Role of American Depositary Receipts in the Development of Emerging Equity Markets," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 670-690, August.
  • Handle: RePEc:tpr:restat:v:86:y:2004:i:3:p:670-690
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    Cited by:

    1. Boubakri, Salem & Guillaumin, Cyriac, 2015. "Regional integration of the East Asian stock markets: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 136-160.
    2. International Monetary Fund, 2008. "Can Regional Cross-listings Accelerate Stock Market Development? Empirical Evidence from Sub-Saharan Africa," IMF Working Papers 08/281, International Monetary Fund.
    3. Ribstein Larry E., 2005. "Cross-Listing and Regulatory Competition," Review of Law & Economics, De Gruyter, vol. 1(1), pages 97-148, April.
    4. Kamal A. El-Wassal, 2013. "The Development of Stock Markets: In Search of a Theory," International Journal of Economics and Financial Issues, Econjournals, pages 606-624.
    5. Schäfer, Larissa, 2015. "Essays in banking and international finance," Other publications TiSEM 54db9c22-05fa-4444-97d5-1, Tilburg University, School of Economics and Management.
    6. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187.
    7. Jochen R. Andritzky, 2007. "Capital Market Development in a Small Country; The Case of Slovenia," IMF Working Papers 07/229, International Monetary Fund.
    8. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Stock market development under globalization: Whither the gains from reforms?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1731-1754, June.
    9. Gebka, Bartosz & Serwa, Dobromil, 2007. "Intra- and inter-regional spillovers between emerging capital markets around the world," Research in International Business and Finance, Elsevier, pages 203-221.
    10. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, pages 887-935.
    11. Halling, Michael & Pagano, Marco & Randl, Otto & Zechner, Josef, 2005. "Where is the Market? Evidence from Cross-Listings," CEPR Discussion Papers 4987, C.E.P.R. Discussion Papers.
    12. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, pages 163-192.
    13. Hales, Alma D. & Mollick, André V., 2014. "The impact of ADR activity on stock market liquidity: Evidence from Latin America," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 417-427.
    14. Lee, Chien-Chiang & Chang, Chi-Hung & Chen, Mei-Ping, 2015. "Industry co-movements of American depository receipts: Evidences from the copula approaches," Economic Modelling, Elsevier, vol. 46(C), pages 301-314.
    15. Dey, Malay K. & Wang, Chaoyan, 2012. "Return spread and liquidity: Evidence from Hong Kong ADRs," Research in International Business and Finance, Elsevier, pages 164-180.
    16. Augusto de la Torre & Juan Carlos Gozzi & Sergio L. Schmukler, 2008. "Capital Market Development: Whither Latin America?," NBER Chapters,in: Financial Markets Volatility and Performance in Emerging Markets, pages 121-154 National Bureau of Economic Research, Inc.
    17. Wang, Daphne & Esqueda, Omar A., 2014. "National cultural effects on leverage decisions: Evidence from emerging-market ADRs," Research in International Business and Finance, Elsevier, pages 152-177.
    18. Hail, Luzi & Leuz, Christian, 2009. "Cost of capital effects and changes in growth expectations around U.S. cross-listings," Journal of Financial Economics, Elsevier, vol. 93(3), pages 428-454, September.
    19. Smirnova, Elena, 2008. "Depositary receipts and firm value: Evidence from Central Europe and Russia," Emerging Markets Review, Elsevier, vol. 9(4), pages 266-279, December.
    20. Korczak, Adriana & Korczak, Piotr, 2013. "The development of emerging stock markets and the demand for cross-listing," Journal of Empirical Finance, Elsevier, pages 63-77.
    21. repec:idb:idbbks:349 is not listed on IDEAS
    22. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio L., 2006. "Stock market development and internationalization: Do economic fundamentals spur both similarly?," Journal of Empirical Finance, Elsevier, pages 316-350.
    23. Camilleri, Silvio John, 2006. "Strategic Priorities for Stock Exchanges in New EU Member States," MPRA Paper 62494, University Library of Munich, Germany.
    24. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, September.

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