The post-listing investment performance of American depository receipts

Abstract

This study investigates the investment performance of newly created AD Rs listed on U S markets in the period immediately following their introduction It transpires that variation in return performance between different categories of ADRs is marked. A major factor in differentiating the patterns of short-term investment performance is whether the listing initiation of the ADR is associated with the raising of new equity capital for the foreign firm. Those associated with worldwide IPOs have impressive first day Abnormal Returns, and Cumulative Average Abnormal Returns (CAARs) of 25.62% over the first l 00 trading days This pattern is particularly notable for ADRs associated with privatizations Some ADR listing initiations are IPOs of the equity in US markets, but have previously traded abroad and thus have elements of being Seasoned Equity Offerings. These post smaller first day gains, but have a 100-day CAAR of 12. 8 I% In contrast to the above categories in which incremental equity capital is raised, ADR listings not associated with the raising of new capital have minimal abnormal returns. The marked variation in the short-term investment performance of ADRs as the context for their listing initiations varies indicates that international cross listings using Depository Receipts do not constitute a homogeneous group of securities.