Market Segmentation and the Cost of Capital in International Equity Markets

Posted: 23 Jan 2001

See all articles by Vihang R. Errunza

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

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Abstract

While theoretical models predict a decrease in the cost of capital from depositary receipt offerings, the economic benefits of this liberalization have been difficult to quantify. Using a sample of 126 firms from 32 countries, we document a significant decline in the cost of capital of 42 percent. In addition, we show the decline is driven by the ability of U.S. investors to span the foreign security prior to cross-listing. Our findings support the hypothesis that financial market liberalizations have significant economic benefits.

Keywords: cost of capital, depositary receipts, liberalization

JEL Classification: F3

Suggested Citation

Errunza, Vihang R. and Miller, Darius P., Market Segmentation and the Cost of Capital in International Equity Markets. Available at SSRN: https://ssrn.com/abstract=251680

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

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Canada
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Darius P. Miller (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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