Market Segmentation and the Cost of Capital in International Equity Markets
36 Pages Posted: 13 Aug 1998
Date Written: January 2000
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 of 42% in the cost of capital. 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.
JEL Classification: G15
Suggested Citation: Suggested Citation