Cross-sectional variation in the long-run performance of capital-raising depositary receipts and their underlying stocks

In this paper, we investigate the cross-sectional variation in the post-issuance long-run performance of American depositary receipts (ADRs) and their underlying stocks. We focus on the factors that explain the cross-sectional variation in the returns. Our sample includes issues of ADRs by 109 non-U.S. companies from Asia, Africa, Europe and Latin America during the period 2000-2004. We find that, overall, ADR issues and their underlying stocks underperform market benchmarks. We also find that the degree to which the ADRs underperform depends on whether the underlying foreign company is undergoing privatization, the investor protection quality of the foreign country, the ADRs' offer size, and the listing market.