The Choice of ADRs
American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance
American University of Sharjah - School of Business and Management
Paris December 2007 Finance International Meeting AFFI - EUROFIDAI
We study the determinants of a firm's decision to issue one of the four available ADR programs (Level I, Level II, Level III, and Rule 144A). We find that the firm's attributes (size, income, asset growth, leverage, privatization, ownership structure, and country-of-origin) and the firm's home-country institutional variables (accounting rating and legal protection of minority shareholders) condition this choice. We also examine the issuing activity and the determinants of the ADR choice before and after the enactment of the Sarbanes-Oxley (SOX) Act. Following this structural change, we provide evidence of a reallocation between ADR programs. Compared to the pre-SOX period, firms from emerging markets, and those from countries with weak legal protection of minority shareholders, are more likely after SOX to choose Rule 144A and Level III, respectively.
Number of Pages in PDF File: 54
Keywords: ADR, bonding, governance, Sarbanes-Oxley Act
JEL Classification: G15, G32, G34, K00working papers series
Date posted: August 27, 2007 ; Last revised: October 14, 2008
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