The Choice of ADRs
54 Pages Posted: 27 Aug 2007 Last revised: 14 Oct 2008
Date Written: March 2008
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.
Keywords: ADR, bonding, governance, Sarbanes-Oxley Act
JEL Classification: G15, G32, G34, K00
Suggested Citation: Suggested Citation