ADR Valuation and Listing of Foreign Firms in U.S. Equity Markets

Abstract

We examine the decision to list in the U.S. markets by foreign firms through American Depository Receipts (ADRs). There is a high positive correlation between the valuation of existing ADRs and the number of new ADR listings next year. ADR listing is more likely when existing ADRs are valued higher. The subsequent operating and stock performance of ADR firms listed in hot years is significantly worse than those of ADR firms listed in cold years. These results are consistent with the hypothesis that market timing is an important motivation for foreign firms to list in the U.S. equity markets.

Keywords: U.S. Listing, ADR, Valuation, Operating Performance, Market Timing

JEL Classification: G14, G15, G32