Valuation and Operating Performance Gains

Eurasian Business Review, 3(2), 2013, 137-163
DOI: 10.14208/ebr.2013.03.02.002
ARE THERE VALUATION AND OPERATING PERFORMANCE GAINS

FROM INTERNATIONAL CROSS LISTING? EVIDENCE FROM
TAIWANS DEPOSITARY RECEIPT ISSUERS
Jyh-Dean Hwang*
Abstract: This article investigates if there are valuation and operating performance
gains from international cross listing, using a sample of 55 Taiwanese firms that
instituted deposit receipt (DR) programs in the US, the UK and Luxemburg from
1992 to 2009. We find that Tobins q, stock returns and operating performance of
DR issuers deteriorate and under-perform their benchmarks substantially after
issue. Taiwan has been an emerging market not very accessible for foreign
investors for the best part of our sample period and DR issuers from Taiwan should
be in a better position to reap valuation gains and other benefits by listing their
shares in more prestigious markets. Our findings suggest that the potential benefits
of international cross listing might not be as significant as previously thought.
These results are of practical relevance and contribute to the ongoing debate on
the costs and benefits of international cross listing.
Keywords: International Cross Listing, DR Issue, Valuation Effects, Operating
Performance Effects
1. Introduction
It is widely documented in the literature that international cross listing has
positive valuation effects on the listed companys shares. In general, such
effects are attributed to a reduction of the risk premium associated with the
cross-border barriers to investments and disadvantaged characteristics of
the particular home equity market (Sarkissian and Schill, 2012). In
particular, extant literature proposes several sources of international cross
listing benefits, including reduction of cross-border barriers to investment
(Errunza and Losq, 1985; Alexander et al. 1987, 1988; Foerster and
Karolyi, 2000; Flavin and OConnor, 2010), expansion of shareholder base
(Foerster and Karolyi, 1999), increase in information flow (Merton, 1987;
Foerster and Karolyi, 1999), increase in liquidity (Werner and Kleidon,
1996; Domowitz et al. 1998; Foerster and Karolyi, 1998), increase in
visibility and prestige (Fanto and Karmel, 1997; Karolyi, 1998; Bancel and
Mittoo, 2001; Baker et al. 2002), access to more developed capital markets
and lower-cost external financing (Errunza and Miller, 2000; Lins et al.
2005; Khurana et al. 2008), listing serving as a signal of high value firms
(Fuerst, 1998; Moel, 1999), better monitoring and disclosure requirements
(Fuerst, 1998; Huddart et al. 1999), and better minority shareholder
protection (Coffee, 2002; Reese and Weisbach, 2002; Lee, 2003; Benos
and Weisbach, 2004; Doidge et al. 2004).
On the other hand, capital structure models in the spirit of Myers
and Majluf (1984) suggest that firms have incentives to issue common
* Department of International Business, National Taiwan University, Taipei, Taiwan.
Email: jdhwang@ntu.edu.tw.
J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163
stock when they are overvalued. The literature has demonstrated that the
market will react negatively to the announcement of public equity offering.
However, the market may under-react. As a consequence, those firms may
have post-issue underperformance. Prediction based on these models is
consistent with market timing hypothesis, which predicts firms time their
stock issues during periods of strong operating performance. Such firms
will experience lower post-issue performance.
The existing literature documents substantial abnormal stock returns
and operating performance during periods surrounding new securities
issue. Dharan and Ikenberry (1995), Loughran and Ritter (1995; 1997),
McLaughlin et al. (1998), Bae et al. (2002), and Khurshed et al. (2003),
among others, observe post-issue underperformance for firm issuing stock
and equity-like securities1. As many of the DR issuers raise equity capital
from DR issue, by analog, the issuance of DRs may be associated with
valuation effects and operating effects similar to those observed among
firms that issue equity.
This article investigates if there are valuation and operating
performance gains from international cross listing, using a sample of 55
Taiwanese firms that issued deposit receipts for the first time in the US, the
UK and Luxemburg from 1992 to 2009.
We find strong evidence of negative valuation effects. DR issuance
is associated with a substantial decline in Tobins q and stock returns after
issue. Our findings are consistent with those reported by Gozzi et al.
(2008); King and Segal (2009); and Sarkissian and Schill (2009). We also
find that the operating performance of DR issuers deteriorate and underperform their benchmarks substantially after issue. Our findings suggest
that apart from seeking the aforementioned benefits of international cross
listing, firms might time their issue of depositary receipts strategically during
period of strong stock price and operating performance.
Taiwan has been an emerging market not very accessible for
foreign investors for the best part of our sample period. Cetorelli and
Peristiani (2010) use network analysis to derive prestige index for forty-five
stock markets. They find that the US and the UK stock markets are far
more prestigious than the Taiwan market. Based on the market
segmentation hypothesis, the disadvantaged market hypothesis and
Mertons (1987) recognition hypothesis of international cross listing, DR
issuers from Taiwan should be in a better position to have valuation gains
and other benefits by listing their shares in these markets2. Contrary to the
predictions of these hypotheses, we find that the valuation of Taiwans DR
issuers deteriorate and under-perform their benchmarks substantially after
issue.
A notable exception in the literature is Eckbo et al. (2000) who find no significant evidence
of underperformance post-SEO. I thank the reviewer for bringing this to my attention.
2
I thank the reviewer for bringing to my attention that the argument is also consistent with
Mertons recognition hypothesis.
138
Our findings suggest that the potential benefits of international cross

listing might not be as significant as previously thought. Our results are of
practical relevance and importance and contribute to the current debate on
the costs and benefits of international cross listing (see Fernandes and
Ferreira, 2008; Charitou and Louca, 2009; Barzuza, 2009; Goto et al. 2009;
Cetorelli and Peristiani, 2010; Dodd and Louca, 2011; Sarkissian and
Schill, 2012; Bris et al. 2012).
The rest of this article is organized as follows. Section 2 describes
data used in this study and our research methodology. Section 3 presents
evidence on valuation effects of DR issue. Section 4 presents evidence on
operating performance effects. Section 5 sums up our findings and
concludes this article.
2. Data and Methodology
2.1. Data
Our sample includes 55 Taiwanese firms that issued deposit receipts for
the first time in the US, the UK and Luxemburg from 1992 to 2009. All data
used in this study are taken from database of Taiwan Stock Exchange,
Taiwan Economic Journal and Securities and Futures Bureau, Taiwan. The
first depositary receipt program from Taiwan was established in 1992 and a
total of 73 Taiwanese firms had issued deposit receipts in the US, the UK
and Luxemburg from 1992 to 2009. In constructing our sample, we
eliminate financial firms, firms that were delisted from Taiwan Stock
Exchange after their DR issue, and firms without sufficient financial data to
construct performance measures for empirical analysis.
In Table 1, we present the frequency of DR issues in our sample by
the year of DR listing, the listing market and capital raising activity. Of the
55 DR listings in our sample, there are 37 listings on the Luxemburg
market, 8 listings on the US market and 10 listings on the UK market. 33
listings raised equity capital and 22 listing did not. Data of the listing
frequency are from Taiwan Stock Exchange and Securities and Futures
Bureau, Taiwan.
Apart from using the whole sample to investigate the effects of DR
listing, we split our sample into a Luxemburg listing subsample and a NonLuxemburg listing subsample to examine if the effects of DR listing depend
on the listing markets. It is interesting to investigate the effects of DR listing
for each of the three listing markets. However, as there are only 8 listings
on the US market and only 10 listings on the UK market, we group these 18
listings together as the Non-Luxemburg listing subsample.
Based on the market segmentation hypothesis, the disadvantaged
market hypothesis and the recognition hypothesis of international cross
listing, DR issuers from Taiwan should be in a solid position to garner
valuation gains and other benefits by listing their shares in these markets. It
is worthwhile and interesting to use DR issuers from Taiwan as sample to
investigate if there are valuation and operating performance gains from
139
international cross listing, as findings of the contrary would cast stronger

doubt on the potential benefits of international cross listing documented in
the existing literature.
Table 1. Frequency of DR issues by year, market and capital raising
Year of
issue
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Sum
Number.
of issue
3
1
4
4
4
6
1
7
2
1
5
10
1
2
1
1
0
2
55
Luxemburg
listed
2
1
4
2
0
2
1
6
1
0
3
8
1
2
1
1
0
2
37
US
listed
0
0
0
2
1
2
0
0
1
0
1
1
0
0
0
0
0
0
8
UK
listed
1
0
0
0
3
2
0
1
0
1
1
1
0
0
0
0
0
0
10
Capital No capital
raised
raised
0
3
1
0
2
2
1
3
4
0
3
3
1
0
1
6
1
1
1
0
5
0
8
2
1
0
1
1
1
0
1
0
0
0
1
1
33
22
Note: Data are compiled from Taiwan Stock Exchange and Securities and Futures Bureau,
Taiwan.
2.2. Measuring Valuation Effect of DR Issue

We use three valuation measures to examine the valuation effects of DR
issue, namely Tobins q, holding period returns, and cumulative abnormal
returns (CAR).
2.2.1. Measuring Valuation Effects by Tobins q
Tobins q is computed as follows: (book value of debt + market value of
equity)/book value of total asset. We examine the effects of DR issuance
on Tobins q over a seven-year period around the issue year, including the
issue year (designated year 0), the three-year period before the issue year
(years -3, -2 and -1), and the three-year period after the issue year (years
+1, +2 and +3).
We use two benchmarks to measure abnormal Tobins q of DR
issuers. One is Tobins q of the other firms in the issuers industry. We
calculate an issuers industry-adjusted Tobins q by subtracting Tobins q of
the other firms as a whole in the issuers industry from Tobins q of the
issuer over the same period.
140
The other benchmark is Tobins q of the matched firm. The matched

firm is defined as a firm that is in the same or similar industry of the DR
issuer, has a seasoned equity offering in the year when the DR issuer
offers its DR for the first time, and has a book value most comparable to the
DR issuer. We calculate an issuers matched-firm-adjusted Tobins q by
subtracting Tobins q of the matched-firm from Tobins q of the issuer over
the same period.
This methodology controls for the possible changes in industry-wide
as well as economy-wide business conditions.
Our data have two dimensions: cross-sectional observations (DR
issuer) and time series observations (year relative to DR issue). Empirical
estimates should take both cross-section and time series variation in the
data into account. We estimate the changes in Tobins q after DR issue
using panel analysis in a way similar to Pagano et al. (1998) and Khurshed
et al. (2003). We use the following specification to estimate effects of DR
issue on Tobins q:
(1)
The variable yit is Tobins q for firm i in the year t. Subscript t is the
year relative to DR issue, t =-3, -2, -1, +1, +2, +3 . The variable drj is the
dummy variable equal to 1 if the year is the event year j after the DR issue
year, and equal to 0 otherwise. Subscript j is the event year between +1
and +3 relative to the DR issue year. The variable i is an issuer-specific
dummy. The error term eit has two dimensions, one for the issuer (i) and
one for the time period (t). When the estimated coefficient for the event
year j is negative, it means Tobins q decreases compared to its average
over the three years before the year of issue. In other words, we use an
issuer-specific fixed-effects panel regression model to estimate the effects
of DR issue on the issuers Tobins q. The redundant fixed-effects test is
employed to check for the legitimacy of the fixed-effects specification. The
test takes as the null that the issuer-specific fixed-effects are redundant. In
performing this test, the panel regression model with firm-specific fixed
effects is estimated first and the null that the issuer-specific fixed-effects
are redundant is tested. When the null is rejected, there are issuer-specific
fixed-effects and the panel regression model should be estimated
accordingly. When the null is accepted, there are no fixed effects.
We do not include a dummy variable for each year because our
sample is aligned in event time, i.e. year relative to the year of DR issue,
rather than calendar time. It may be of interest to include a dummy variable
for each year of DR listing and a dummy variable for each DR issuers
industry in Equation (1) to control for the respective effect. However, as our
sample is not large enough and not well spread across the calendar years
and industries, doing so will cause perfect collinearity problem and render
regression analysis infeasible. Take the years of 1993, 1998, 2001, 2004,
2006 and 2007 for example, there is only 1 DR listing in each of these
141
years. Including a dummy variable for one of these years and a dummy for
the DR issuer in that year will lead to perfect collinearity problem.
2.2.2. Measuring Valuation Effects by Holding Period Returns
We calculate two holding period returns in the period around the DR issue
and use them to test for the valuation effects. The first holding period,
designated [-252,-60], starts one year, defined as 252 trading days, before
the issue and ends 60 trading days before the issue. The second holding
period, designated [+1, +3*252], begins on the day after the issue and ends
three years later. We use three benchmarks to measure abnormal returns
of DR issuer. One is the returns of the market index. The second one is the
stock returns of the other firms in the issuers industry. The third benchmark
is the stock returns of the matched firm. An issuers market-adjusted stock
returns, industry-adjusted stock returns and matched-firm-adjusted stock
returns are calculated in the same manners as its industry-adjusted Tobins
q and matched-firm-adjusted Tobins q. We test for the effects of DR issue
on the holding period abnormal returns using t-test and Wilcoxon signedrank test.
2.2.3. Measuring Valuation Effects by Cumulative Abnormal Returns
For every DR issuer, the following time series regression is estimated:
(2)
for t = 250 to t = 101 days relative to the date of DR issue. Rit is the
stock returns of issuer i on day t and Rmt is the returns of Taiwans stock
market index on day t. We calculate the cumulative abnormal returns (CAR)
from the residuals for four event periods (E) around the date of DR issue,
namely [100,1], [ 0, + 30], [ 0, +100] , and [ 0, + 250]:
(3)
We then test for the significance of CAR using standard event study
methodology and infer from the test results if there are valuation gains for
the issuers after the issuance of DR.
2.3. Measuring Operating Performance Effects of DR Issue
We examine the operating effects of DR issue over a seven-year period
around the issue year, including the issue year (designated year 0), the
three-year period before the issue (years -3, -2 and -1), and the three-year
period after the issue year (years +1, +2 and +3).
Our measurement of operating performance includes returns on
asset (ROA, calculated as net income/total asset), returns on equity (ROE,
142
calculated as net income/equity), cash flow returns on asset (CFROA,

calculated as operating cash flow/total asset), returns on sales (ROS,
calculated as net income/sales), ratio of earnings before interest, tax,
depreciation and amortization to total asset (EBITDA/TA), and asset
turnover (AT, calculated as Sales/TA).
We use two benchmarks to measure abnormal operating
performance of DR issuers. One is the performance of the other firms in the
issuers industry. The other benchmark is the performance of the matched
firm. An issuers industry-adjusted operating performance and matchedfirm-adjusted operating performance are calculated in the same manners
as its industry-adjusted Tobins q and matched-firm-adjusted Tobins q.
This methodology controls for the possible changes in industry-wide
as well as economy-wide business conditions and also control for possible
mean reversion in operating performance reported in previous studies
(confer Fama and French, 1995).
As is the case of Tobins q, our data have cross-sectional
observations (DR issuer) and time series observations (year relative to DR
issue). In a way similar to that in estimating the effects of DR issue on
Tobins q, we use an issuer-specific fixed-effects panel regression model to
estimate the effects of DR issue on operating performance (confer Equation
1).
3. Evidence on Valuation Effects
3.1. Valuation Effects Measured by Tobins q
Descriptive statistics of the unadjusted, industry-adjusted and matchedfirm-adjusted Tobins q for the whole sample, the Luxemburg subsample
and the Non-Luxemburg subsample are presented in Tables 2A-2C, 3A-3C
and 4A-4C respectively. As is shown in these tables, most measures of
Tobins q deteriorate after the issuance of DR. Take Tobins q of the whole
sample as example. The mean of the unadjusted Tobins q declines from
3.59 in the year of (-3) to 2.05 in the year of (+3) (confer Figure 1 and Table
2A). The mean of the matched-firm-adjusted Tobins q declines from 2.08 in
the year of (-3) to 0.33 in the year of (+3) (confer Table 4A). Descriptive
statistics of Tobins q augur the following panel regression results.
143
3.6
3.4
3.2
Tobin's
3
2.8
2.6
2.4
2.2
2
-3
-2
-1
0
Year
Figure 1. Mean of the unadjusted Tobins q around DR listing: Whole

sample
Table 2A. Descriptive statistics of unadjusted performance measures:
Whole sample
Year
Statistic
Tobins q
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
-3
-3
-3
-2
-2
-2
-1
-1
-1
0
0
0
1
1
1
2
2
2
3
3
3
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
3.59
2.99
2.02
3.19
2.81
2.01
3.25
2.63
2.10
2.82
2.57
1.62
2.45
1.91
2.00
2.54
1.75
2.00
2.05
1.83
1.26
0.10
0.08
0.08
0.09
0.07
0.10
0.08
0.07
0.10
0.08
0.07
0.06
0.07
0.07
0.07
0.05
0.05
0.10
0.04
0.05
0.11
0.16
0.14
0.11
0.14
0.13
0.17
0.14
0.13
0.15
0.13
0.13
0.09
0.12
0.13
0.10
0.08
0.10
0.18
0.06
0.10
0.24
0.10
0.12
0.12
0.10
0.07
0.10
0.10
0.08
0.11
0.09
0.09
0.09
0.10
0.09
0.08
0.09
0.07
0.09
0.10
0.09
0.09
0.14
0.11
0.13
0.11
0.11
0.19
0.11
0.09
0.15
0.14
0.10
0.13
0.12
0.09
0.12
0.05
0.08
0.27
0.04
0.05
0.23
0.25
0.19
0.17
0.23
0.18
0.17
0.24
0.19
0.18
0.26
0.21
0.18
0.23
0.18
0.18
0.18
0.18
0.24
0.19
0.15
0.23
0.91
0.74
0.67
0.89
0.68
0.68
0.84
0.66
0.65
0.77
0.60
0.54
0.79
0.59
0.58
0.79
0.59
0.55
0.86
0.60
0.65
144
Table 2B. Descriptive statistics of unadjusted performance measures:

Luxemburg sample
Year Statistic
-3
-3
-3
-2
-2
-2
-1
-1
-1
0
0
0
1
1
1
2
2
2
3
3
3
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Tobins
q
3.05
2.29
1.90
2.89
2.51
1.86
3.05
2.29
1.90
2.62
2.57
1.28
1.91
1.75
0.97
2.17
1.71
1.78
1.78
1.60
1.11
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
0.09
0.08
0.06
0.08
0.07
0.09
0.09
0.08
0.06
0.07
0.06
0.06
0.06
0.07
0.06
0.04
0.04
0.11
0.03
0.04
0.12
0.15
0.14
0.10
0.12
0.12
0.16
0.15
0.14
0.10
0.11
0.10
0.10
0.11
0.12
0.10
0.06
0.09
0.21
0.03
0.09
0.28
0.09
0.10
0.11
0.08
0.06
0.09
0.09
0.10
0.11
0.08
0.07
0.09
0.09
0.08
0.08
0.07
0.04
0.10
0.09
0.08
0.09
0.12
0.11
0.09
0.08
0.10
0.21
0.12
0.11
0.09
0.11
0.09
0.12
0.10
0.07
0.13
0.00
0.05
0.31
0.00
0.04
0.27
0.23
0.17
0.17
0.20
0.16
0.17
0.23
0.17
0.17
0.23
0.15
0.17
0.22
0.16
0.20
0.13
0.15
0.25
0.15
0.13
0.24
0.93
0.77
0.67
0.87
0.62
0.70
0.93
0.77
0.67
0.79
0.62
0.60
0.84
0.61
0.67
0.83
0.64
0.60
0.92
0.64
0.71
The effects of DR issue on Tobins q are estimated using issuerspecific fixed-effects panel regression. The fixed-effects specification is
justified by the test results of redundant fixed-effects test. The null
hypothesis that the fixed-effects are redundant is rejected, indicating that
the panel regression model should be estimated using fixed-effects
specification.
Panel regression results of the unadjusted, industry-adjusted and
matched-firm-adjusted Tobins q for the whole sample, Luxemburg
subsample and Non-Luxemburg subsample are reported in Tables 5A-5C.
From its pre-issue average of 3.37, the unadjusted Tobins q for the
whole sample declines by the amount of 0.96, 0.93, and 1.37 in the first
year, the first two years, and the first three years after the year of issue. In
percentage terms, these are decreases of 28.49%, 27.60% and 40.65%
(confer Panel A of Table 5A). For the industry-adjusted Tobins q, from its
pre-issue average of -0.18, it increases by 0.01 in the first year after the
year of issue, and decreases by 0.06 and 0.14 in the first two years and the
first three years after the year of issue. Nevertheless, all these changes are
not significant at the conventional significance level (confer Panel B of
Table 5A). For the matched-firm-adjusted Tobins q, from its pre-issue
average of 0.04, it declines by 0.03, 0.03 and 0.04 in the first year, the first
145
two years, and the first three years after the year of issue. In percentage
terms, these are decreases of 75%, 75% and 100% (confer Panel C of
Table 5A).
Results for the Luxemburg subsample and the Non-Luxemburg
subsample are similar to the results using the whole sample (confer Tables
5B and 5C respectively). We also include sales growth and firm size,
proxied by log of market capitalization, of the DR issuers as control
variables and re-estimate the effect of DR issue on Tobins q using the
whole sample, the Luxemburg subsample and the Non-Luxemburg
subsample. Regression results (not reported) are similar to those without
controlling for sales growth and firm size.3 Taken together, panel regression
results indicate that the valuation effect of DR issuance, measured by
Tobins q, is negative.
Table 2C. Descriptive statistics of unadjusted performance measures:
Non-Luxemburg sample
Year
-3
-3
-3
-2
-2
-2
-1
-1
-1
0
0
0
1
1
1
2
2
2
3
3
3
Statistic
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
Mean
Median
SD
OCF
Tobins
ROA
ROE
q
TA
4.80
0.12
0.19
0.14
4.71
0.08
0.15
0.13
1.81
0.10
0.14
0.14
3.92
0.12
0.18
0.13
3.23
0.08
0.16
0.11
2.21
0.12
0.17
0.12
4.80
0.12
0.19
0.14
4.71
0.08
0.15
0.13
1.81
0.10
0.14
0.14
3.24
0.11
0.16
0.12
2.52
0.11
0.17
0.12
2.15
0.06
0.07
0.08
3.56
0.09
0.14
0.13
2.82
0.09
0.16
0.12
2.97
0.08
0.09
0.09
3.24
0.08
0.12
0.11
1.82
0.09
0.12
0.09
2.26
0.08
0.12
0.07
2.57
0.07
0.11
0.12
2.19
0.05
0.10
0.11
1.39
0.06
0.08
0.08
NI
Sales
0.19
0.15
0.16
0.15
0.14
0.15
0.19
0.15
0.16
0.20
0.14
0.13
0.15
0.13
0.11
0.13
0.09
0.14
0.12
0.07
0.11
EBITDA
Sales
0.29
0.25
0.19
0.29
0.26
0.17
0.29
0.25
0.19
0.31
0.25
0.18
0.26
0.25
0.14
0.27
0.22
0.18
0.27
0.23
0.18
Sales
TA
0.89
0.68
0.67
0.91
0.70
0.65
0.89
0.68
0.67
0.71
0.59
0.38
0.68
0.59
0.32
0.72
0.59
0.45
0.76
0.48
0.52
Estimation results controlling for sales growth and firm size are available from the author
upon request.
146
Table 3A. Descriptive statistics of industry-adjusted performance

measures: Whole sample
Year
Statistics
Tobins
q
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
-3
-3
-3
3
3
3
Mean
Median
SD
Mean
Median
SD
-0.40
-0.52
1.77
-0.33
-0.36
1.20
0.02
-0.01
0.08
-0.01
-0.01
0.11
0.04
0.01
0.12
-0.04
0.00
0.24
0.02
0.02
0.13
0.01
0.01
0.08
0.04
0.01
0.12
-0.04
0.00
0.23
0.07
0.01
0.17
0.03
0.02
0.22
0.15
0.04
0.64
0.10
-0.02
0.62
Note: Descriptive statistics from years -2 to 2 are not reported to save space. The
performance measures in these years follow a deteriorating trend similar to that in Tables 2A
to Table 2C.
Table 3B. Descriptive statistics of industry-adjusted performance

measures: Luxemburg sample
Year
Statistic
Tobins q
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
-3
-3
-3
3
3
3
Mean
Median
SD
Mean
Median
SD
-0.71
-0.76
1.55
-0.48
-0.49
1.06
0.01
-0.01
0.08
-0.03
-0.02
0.12
0.03
0.00
0.12
-0.06
0.00
0.28
0.00
0.00
0.11
0.00
0.00
0.09
0.02
-0.01
0.11
-0.07
-0.01
0.27
0.04
0.00
0.16
-0.02
-0.03
0.23
0.18
0.06
0.65
0.13
0.03
0.66
Note: Confer note of Table 3A
Table 3C. Descriptive statistics of industry-adjusted performance

measures: Non-Luxemburg sample
Year
Statistic
-3
-3
-3
3
3
3
Mean
Median
SD
Mean
Median
SD
Tobins
q
0.64
0.56
2.14
-0.03
0.02
1.43
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
0.04
0.01
0.09
0.01
0.00
0.06
0.06
0.03
0.12
0.02
0.00
0.07
0.06
0.05
0.14
0.04
0.04
0.07
0.08
0.05
0.13
0.04
0.01
0.09
0.11
0.07
0.17
0.10
0.05
0.17
0.10
-0.16
0.65
0.04
-0.12
0.53
147
Table 4A. Descriptive statistics of matched-firm-adjusted performance

measures: Whole sample
Year
-3
-3
-3
3
3
3
Statistics Tobins q
ROA
ROE
OCF
TA
NI
Sales
EBITDA
Sales
Sales
TA
Mean
Median
SD
Mean
Median
SD
0.04
0.03
0.15
-0.01
0.01
0.12
0.13
0.05
0.51
-0.02
0.01
0.23
0.05
0.05
0.15
0.01
0.03
0.09
0.27
0.02
0.94
-0.03
0.01
0.24
0.12
0.05
0.54
-0.01
0.06
0.23
-0.06
-0.05
0.72
-0.04
-0.07
0.54
2.08
2.15
2.64
0.33
0.33
1.78
Table 4B. Descriptive statistics of matched firm-adjusted performance

measures: Luxemburg sample
Year
Statistic
-3
-3
-3
3
3
3
Mean
Median
SD
Mean
Median
SD
Tobins
q
1.76
1.93
2.32
0.07
0.15
1.76
ROA
ROE
0.02
0.00
0.16
-0.02
0.01
0.14
0.05
0.01
0.28
-0.03
0.01
0.27
OCF
TA
0.03
0.01
0.14
0.00
0.02
0.10
NI
Sales
0.30
0.01
1.14
-0.05
0.01
0.28
EBITDA
Sales
0.11
0.03
0.65
-0.04
0.04
0.26
Sales
TA
0.03
0.03
0.74
0.02
-0.07
0.59
Table 4C. Descriptive statistics of matched firm-adjusted performance

measures: Non-Luxemburg sample
Year
Statistic
-3
-3
-3
3
3
3
Mean
Median
SD
Mean
Median
SD
Tobins
q
2.89
3.44
3.32
0.83
0.42
1.77
ROA
0.08
0.07
0.14
0.01
0.01
0.08
ROE
0.26
0.06
0.75
0.01
0.03
0.11
148
OCF
TA
0.10
0.07
0.15
0.02
0.03
0.07
NI
Sales
0.20
0.12
0.34
0.02
0.02
0.14
EBITDA
Sales
0.13
0.12
0.24
0.05
0.08
0.15
Sales
TA
-0.22
-0.46
0.67
-0.14
-0.09
0.44
Table 5A. Effects of DR issue on Tobins q: Whole sample
N
299
N
272
Panel A. Unadjusted Tobins q

PreYear relative to DR issue
Adj. R2
issue
+1
+2
+3
average
a
a
a
0.50
-0.96
-0.93
-1.37
3.37
(-6.18)
291
(-7.90)
Panel B. Industry-adjusted Tobins q

issue
Adj. R2
+1
+2
+3
average
-0.18
0.01
-0.06
-0.14
0.46
(0.07)
(-5.98)
(-0.45)
(-1.03)
Panel C. Matched-firm-adjusted Tobins q

issue
Adj. R2
+1
+2
+3
average
-0.03 a -0.03 a -0.04 a
0.04
0.48
(-4.67)
(-3.22)
(-4.79)
2 (54)
[p-value]
224.0
[0.00]
2 (54)
[p-value]
230.0
[0.00]
2 (54)
[p-value]
243.7
[0.00]
Note: Effect on Tobins q is estimated by the following equation:

. The variable yit is Tobins q for firm i in the year t.
Subscript t is the year relative to DR issue, t = -3, -2, -1, +1, +2, +3. The variable drj is the
dummy variable equal to 1 if the year is the event year j after the year of DR issue, and
equal to 0 otherwise. A negative coefficient for the event year j implies that Tobins q
decreases compared to its average over the three years before the year of issue. Subscript j
is the event year between +1 and +3 relative to the year of DR issue. Pre-issue average is
average over the three years before the year of issue. Figures in parentheses are
heteroskedasticity and autocorrelation consistent t-statistics. Superscripts a, b and c denote
significant at the 1%, 5%, and 10% levels. Significant coefficients are in bold. The last
column reports 2 statistics and its associated p-value (in bracket) of the null hypothesis
that the issuer-specific fixed-effects are redundant. When the null is rejected, there are
issuer-specific fixed-effects and the panel regression model is estimated accordingly.
Numbers in parentheses beside 2 are degrees of freedom.
149
Table 5B. Effects of DR issue on Tobins q: Luxemburg sample
N
202

Adj. R2
issue
+1
+2
+3
average
a
a
a
-1.17
-0.96
-1.36
3.02
0.47
(-9.87)
N
186

issue
Adj. R2
+1
+2
+3
average
-0.43
-0.19
-0.08
-0.09
0.42
(-1.54)
N
189
(-8.09) (-11.32)
(-0.59)
(-0.69)

issue
Adj. R2
+1
+2
+3
average
-1.29 a -1.18 a -1.40 a
1.48
0.53
(-5.44)
(-4.44)
(-5.01)
2 (36)
[p-value]
152.6
[0.00]
2 (35)
[p-value]
143.3
[0.00]
2 (33)
[p-value]
164.0
[0.00]
Note: Confer note of Table 5A.
Table 5C. Effects of DR issue on Tobins q: Non-Luxemburg sample

N
97

issue
+1
+2
+3
average
b
a
a
-0.54
-0.85
-1.41
4.10
(-1.99)
N
86
90
0.45
(-4.21)

issue
Adj. R2
+1
+2
+3
average
0.36
0.43
-0.02
-0.22
0.45
(1.48)
(-3.15)
Adj. R2
(-0.05) (-0.75)

issue
Adj. R2
+1
+2
+3
average
-1.13 a -1.51 a -1.55 a
2.44
0.38
(-4.29)
(-5.69)
150
(-4.48)
2 (17)
[p-value]
74.0
[0.00]
2 (17)
[p-value]
73.8
[0.00]
2 (17)
[p-value]
55.7
[0.00]
3.2. Valuation Effects Measured by Holding Period Returns

In Table 6A-6C, we present the pre-issue and post-issue holding period
returns of DR issuers for the whole sample, the Luxemburg subsample and
the Non-Luxemburg subsample. On the whole, stock returns of the DR
issuers under-perform their benchmarks in the post-issue period regardless
of the DR listing markets. For the whole sample (confer Table 6A), in the
pre-issue period of [-252, -60], the mean and median of the marketadjusted returns, the industry-adjusted returns and matched-firm-adjusted
returns for DR issuers are not significantly different from zero. In the threeyear holding period after the issue, [+1, +3*252], the mean and median of
the market-adjusted returns are -48% and -45%, both of which are
significant at the 1% level. The industry-adjusted returns for DR issuers in
the three-year holding period after the issue are -52% and -52%, both of
which are significant at the 1% level. The mean of the matched-firmadjusted returns for DR issuers in the three-year holding period after the
issue is -17%, though it is not significant in the statistical sense.
Table 6A. Effects of DR issue on holding period returns: Whole
sample
holding period
Mean
Median
Mean
Median
Mean
Median
[+1, +3*252]
[-252,-60]
Panel A. Market-adjusted returns
-0.48a
0.07
(-6.63)
(1.30)
-0.45a
0.05
[-5.15]
[0.91]
Panel B. Industry-adjusted returns
-0.52a
0.00
(-6.98)
(0.01)
a
-0.52
0.00
[-5.25]
[0.37]
Panel C. Matched-firm-adjusted returns
0.06
-0.17
(1.04)
(-1.15)
0.00
-0.00
[1.01]
[-0.69]
Note: Holding period [-252,-60] starts one year, defined as 252 trading days, before issue
and ends 60 trading days before issue, and [+1, +3*252] begins on the day after issue and
ends three years later. The t-statistics are in parentheses. Figures in squared brackets are
the z-statistics of Wilcoxon signed-rank test. Superscripts a, b and c denote significant at the
1%, 5%, and 10% levels. Significant statistics are in bold.
Results for the Luxemburg listing subsample and Non-Luxemburg

listing subsample are in line with the results using the whole sample (confer
Table 6B and Table 6C). In sum, these results indicate the three-year
holding period returns after DR issue are negative and the long-term
valuation effect of DR issuance is negative.
151
Table 6B. Effects of DR issue on holding period returns: Luxemburg

sample
holding period
Mean
Median
Mean
Median
Mean
Median
[+1, +3*252]
[-252,-60]
-0.53a
0.05
(-5.52)
(0.81)
-0.46a
0.05
[-4.35]
[0.68]
-0.56a
-0.01
(-5.92)
(-0.20)
a
-0.55
0.00
[-4.39]
[0.33]
0.01
-0.30
(0.13)
(-1.50)
0.00
-0.10
[0.18]
[-1.24]
Table 6C. Effects of DR issue on holding period returns: NonLuxemburg sample

holding period
Mean
Median
Mean
Median
Mean
Median
[+1, +3*252]
[-252,-60]
-0.39a
0.09
(-3.68)
(1.09)
-0.33a
0.06
[-2.79]
[0.43
-0.45a
0.02
(-3.65)
(0.32)
-0.46a
-0.04
[-2.89]
[-0.10]
c
0.16
0.09
(1.83)
(0.48)
0.01c
0.13
[1.82]
[0.60]
3.3. Valuation Effects Measured by Cumulative Abnormal Returns

Table 7 presents test results of the cumulative abnormal returns (CAR) for
four event periods around the date of DR issue using the whole sample, the
Luxemburg subsample and Non-Luxemburg subsample. In the pre-issue
period of [-100, -1] for the whole sample, the mean of the cumulative
abnormal returns for all DR issuers is 1.3%, but it is not significantly
different from zero. During the post-issue periods of [0, +30], [0, +100], and
[0, +250] for the whole sample, the means of the cumulative abnormal
152
returns for all DR issuers are -4%, -14%, and -32% respectively, all of
which are significant at the 1% level. Results using the Luxemburg
subsample and the Non-Luxemburg subsample are similar to those for the
whole sample (confer Table 7). These results indicate the valuation effect
of DR issuance, measured by the cumulative abnormal returns, is negative.
Table 7. Effects of DR issue on cumulative abnormal returns (CAR)
Event period
[-100, -1]
[0, +30]
[0, +100]
[0, +250]
CAR
(whole sample)
0.01
(0.26)
-0.04a
(-2.70)
a
-0.14
(-3.43)
a
-0.32
(-3.12)
CAR
(Luxemburg )
0.031
(0.62)
-0.03c
(-1.76)
a
-0.13
(-3.15)
b
-0.24
(-2.45)
CAR
(Non-Luxemburg)
-0.03
(-0.28)
-0.07b
(-2.08)
c
-0.16
(-1.74)
b
-0.29
(-2.03)
Note: Figures in parentheses are t-statistics. Superscripts a, b and c denote significant at

the 1%, 5%, and 10% levels. Significant statistics are in bold.
4. Evidence on Operating Performance Effects

Descriptive statistics of the unadjusted, industry-adjusted and matchedfirm-adjusted operating performance measures for the whole sample, the
Luxemburg subsample and Non-Luxemburg subsample are reported in
Tables 2A-2C, 3A-3C and 4A-4C respectively. As is shown in these three
tables, almost all of the measures of operating performance deteriorate
after the issuance of DR. Take returns on asset (ROA) of the whole sample
as example. The mean of the unadjusted ROA declines from 0.10 in the
year of (-3) to 0.04 in the year of (+3) (confer Table 2A and Figure 2). The
mean of the industry-adjusted ROA declines from 0.02 in the year of (-3) to
-0.01 in the year of (+3) (confer Table 3A). Mean of the matched-firmadjusted ROA declines from 0.04 in the year of (-3) to -0.01 in the year of
(+3) (confer Table 4A). Most of the other measures of operating
performance show similar trends. Descriptive statistics of the operating
performance measures foretell the following panel regression results.
We use an issuer-specific fixed-effects panel regression model to
estimate the effects of DR issue on operating performance in a way similar
to that in estimating the effects of DR issue on Tobins q. Panel regression
results for the unadjusted, industry-adjusted and matched-firm-adjusted
operating performance measures using the whole sample, Luxemburg
subsample and Non-Luxemburg subsample are reported in Tables 8A-8C,
9A-9C and 10A-10C. As is evidenced in these tables, the majority of the
operating performance measures deteriorate substantially after DR
issuance.
153
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
-3
-2
-1
0
Year
ROA
ROE
Figure 2. Mean of the unadjusted ROA and ROE around DR listing:

Whole sample
Take returns on asset (ROA) of the whole sample for example.
From its pre-issue average of 9%, the unadjusted ROA declines by 2
percentage points, 4 percentage points, and 5 percentage points in the first
year, the first two years, and the first three years after the year of issue. In
percentage terms, these are decreases of 22.22%, 44.44% and 55.55%
(confer Table 8A). For the industry-adjusted ROA, from its pre-issue
average of 3%, it declines by 2 percentage points, 3 percentage points, and
4 percentage points in the first year, the first two years, and the first three
years after the year of issue, which are decreases of 66.67%, 100% and
133.33% (confer Table 9A). For the matched-firm-adjusted ROA, from its
pre-issue average of 4%, it declines by 3 percentage points, 3 percentage
points, and 4 percentage points in the first year, the first two years, and the
first three years after the year of issue, which are declines of 75%, 75% and
100% (confer Table 10A). The patterns are similar for all the other
measures of the whole sample with the exception of the unadjusted
OCF/TA. The unadjusted OCF/TA increases by 1 percentage points in the
first year after issue and decreases by about the same magnitude in the
second year after issue (confer Table 8A).
Results using the Luxemburg subsample and Non-Luxemburg
subsample are similar to the results using the whole sample (confer Tables
8B, 9B, 10B for results using the Luxemburg subsample and 8C, 9C, 10C
for the Non-Luxemburg subsample). We also include sales growth and firm
size, proxied by log of market capitalization, of the DR issuers as control
variables and re-estimate the effects of DR listing on all the operating
154
performance measures using the whole sample, the Luxemburg subsample

and the Non-Luxemburg subsample. Regression results (not reported) are
similar to those without controlling for sales growth and firm size 4. By and
large, panel regression results show that the effect of DR listing on
operating performance is negative regardless of the listing markets.
listing might not be as significant as previously thought. Nevertheless, the
present study has its limitation. As stated earlier in section 2.2.1, it may be
of interest to include a dummy variable for each year of DR listing and a
dummy variable for each DR issuers industry in the panel regression
model to control for the respective effect. However, we are unable to
control for such effects in this study as our sample is not large enough and
not well spread across the calendar years and industries.
Table 8A. Effects on unadjusted operating performance: Whole
sample
N
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA
317
Pre-issue Year relative to DR issue

Adj. R2
average
+1
+2
+3
-0.02a -0.04 a -0.05 a 0.60
0.09
(-4.19) (-9.35) (-9.57)
317
0.15
-0.03
-0.07
-0.09
316
317
0.10
0.12
0.01
-0.01
0.49
(1.85)
(-4.17)
(0.50)
-0.01
-0.08
-0.08
314
0.24
-0.01
-0.06
-0.01
317
0.88
-0.08
-0.10
-0.03 0.84
(-4.26) (-5.11) (-1.36)
191.5
[0.00]
0.60
(-1.22) (-10.46) (-8.88)

a
290.7
[0.00]
0.36
(-0.37) (-5.24) (-5.55)

a
260.4
[0.00]
0.52
0.01
337.4
[0.00]
(-3.13) (-8.01) (-9.76)

b
2 (54)
[p-value]
344.7
[0.00]
643.7
[0.00]
Estimation results controlling for sales growth and firm size are available from the author
upon request.
155
Table 8B. Effects on unadjusted operating performance: Luxemburg

sample
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA

average
+1
+2
+3
210
0.08
210
210
210
210
210
0.13
0.08
0.10
0.21
0.88
Adj. R
2 (36)
[p-value]
-0.01c
-0.04a
-0.05 a 0.49
175.3
(-1.89)
(-6.11)
(-7.09)
[0.00]
-0.02
-0.07
(-1.26)
(-5.43)
b
-0.10
(-7.52)
-0.01
0.01
(2.41)
(-2.10)
(2.04)
0.01
-0.10
(0.37)
(-6.13)
(-6.16)
-0.07
(0.51)
(-6.57)
-0.02
-0.07
(-1.02)
(-3.38)
-0.10
-0.06
156.0
[0.00]
0.01
0.01
0.44
0.42
155.2
[0.00]
0.27
99.5
[0.00]
0.49
(-5.59)
179.9
[0.00]
0.02
0.88
(0.89)
492.0
[0.00]
Table 8C. Effects on unadjusted operating performance: NonLuxemburg sample

N
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA
107

issue
+1
+2
+3
average
a
a
-0.03
-0.04
-0.05 a
0.12
(-27.73)
107
0.19
-0.05
(-13.84)
106
107
104
107
0.13
0.17
0.29
0.87
(-39.54)
-0.07
(-19.66)
a
-0.07
-0.01
(-0.23)
(-7.24)
(-3.16)
-0.05
(-1.90)
(-2.74)
(-3.53)
-0.03
-0.03
-0.02
(-3.08)
(-2.75)
(-2.18)
-0.19
(-4.71)
156
-0.15
(-3.64)
-0.12
(-2.63)
2 (17)
[p-value]
157.6
[0.00]
0.58
(-19.92)
-0.02
-0.04
0.73
(-19.96)
-0.01
-0.03
Adj.R2
107.9
[0.00]
0.62
122.9
[0.00]
0.58
111.6
[0.00]
0.80
191.3
[0.00]
0.71
153.7
[0.00]
Table 9A. Effects on industry-adjusted operating performance: Whole

sample
N
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA
317

Adj. R2
average
+1
+2
+3
a
a
-0.02
-0.03
-0.04 a 0.57
0.03
(-8.61) (-12.77) (14.86)
317
0.04
-0.03
-0.06
-0.08
316
0.02
-0.02
-0.01
-0.01
0.45
317
0.03
-0.06
-0.01
-0.07
0.52
314
0.07
-0.01
-0.05
-0.04
0.35
317
0.13
-0.08
-0.10
-0.04
192.6
[0.00]
0.58
(-1.71) (-9.84) (-7.77)

a
294.3
[0.00]
(-0.83) (-7.75) (-8.63)

c
243.2
[0.00]
(-1.13) (-6.64) (-1.65)

a
319.7
[0.00]
(-7.01) (-12.10) (-16.38)

a
2 (54)
[p-value]
327.9
[0.00]
0.86
(-6.33) (-9.11) (-3.85)
676.2
[0.00]
Table 9B. Effects on industry-adjusted operating performance:

Luxemburg sample
N
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA
210

issue
+1
+2
+3
average
a
a
-0.02
-0.04
-0.05 a
0.02
(-8.43) (-14.18)
210
0.03
-0.03
-0.07
(-8.68) (-17.27)
210
210
210
210
-0.01
0.02
0.04
0.15
-0.10
(-0.49)
(-6.43)
(0.24)
0.01
-0.09
(-12.91)
a
(0.21)
(-16.19)
-0.07
-0.12
(-7.45) (-16.04)
157
[0.00]
0.41
-0.056
0.29
[0.00]
145.6
(-4.77)
105.4
[0.00]
0.46
(-13.22)
-0.03
143.1
[0.00]
-0.069
161.1
0.39
(-0.47) (-13.01)
0.01
0.45
(-24.22) .
-0.02
-0.09
2 (36)
[p-value]
(-16.12)
-0.01
-0.01
Adj. R2
166.4
[0.00]
0.89
496.5
[0.00]
Table 9C. Effects on industry-adjusted operating performance: NonLuxemburg sample
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA

average
+1
+2
+3
107
0.05
107
0.06
107
104
107
0.05
0.07
0.12
0.09
2 (17)
[p-value]
-0.02a
-0.02a
-0.03a 0.78
183.9
(-5.59)
(-7.17)
(-7.56)
[0.00]
-0.02
(-3.34)
106
Adj. R
-0.03
-0.04
(-4.54)
(-5.04)
-0.01
-0.02
-0.02
(-1.04)
(-3.16)
(-3.24)
b
-0.01
-0.01
-0.03
(-1.17)
(-1.20)
(-2.43)
-0.01
-0.01
(-2.28)
(-1.01)
(-0.65)
-0.02
-0.10
(-3.32)
-0.06
(-2.12)
-0.06
0.63
127.1
[0.00]
0.64
130.3
[0.00]
0.60
118,6
[0.00]
0.82
201.0
[0.00]
0.76
(-1.96)
174.8
[0.00]
Table 10A. Effects on matched-firm-adjusted operating performance:

Whole sample
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA

average
+1
+2
+3
291
0.04
291
290
290
275
296
0.09
0.04
0.17
0.09
-0.06
Adj. R2
2 (50)
[p-value]
-0.03a
-0.03 a
-0.04 a 0.48
238.7
(-4.67)
(-3.22)
(-4.79)
[0.00]
-0.08
-0.07
-0.10
(-4.02)
(-4.91)
(-5.50)
-0.03
-0.03
-0.02
(-3.05)
(-3.46)
(-1.97)
-0.12
-0.13
-0.19
(-2.06)
(-2.66)
(-3.55)
-0.05
-0.08
(-3.06)
(-4.21)
-0.06
(-9.91)
158
-0.07
(-8.30)
-0.09
0.24
[0.00]
0.38
(1.11)
190.0
[0.00]
0.10
79.0
[0.02]
0.20
(-4.59)
0.01
128.5
112.5
[0.00]
0.68
394.8
[0.00]
Table 10B. Effects on match-firm-adjusted operating performance:

Luxemburg sample
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA

2
Adj. R
average
+1
+2
+3
190
0.02
-0.03 a
-0.01
-0.02 b 0.38
(-3.66) (-1.14) (-2.07)

190
0.05
-0.06
-0.04
190
0.01
-0.03
-0.02
-0.06 0.34
190
0.16
-0.17
-0.18
-0.01 0.30
-0.22
179
0.07
-0.09
-0.08
0.02
-0.09
195
0.03
-0.07
-0.09
39.7
[0.20]
0.11
(-3.31) (-2.88) (-3.20)

a
102.5
[0.00]
(-2.25) (-2.60) (-3.00)

a
114.9
[0.00]
(-2.57) (-1.63) (-0.14)

b
126.5
[0.00]
(-5.53) (-2.69) (-3.71)

b
2 (36)
[p-value]
54.9
[0.01]
-0.02 0.78
(-2.98) (-3.31) (-0.77)
334.8
[0.00]
Note: Confer note of Table 5A. The effect of DR issue on NI/Sales is estimated by panel
regression model with no effects as the null hypothesis that the issuer-specific fixed-effects
are redundant cannot be rejected.
Table 10C. Effects on match-firm-adjusted operating performance:

Non-Luxemburg sample
ROA
ROE
OCF/TA
NI/Sales
EBITDA/Sales
Sales/TA

average
+1
+2
+3
101
0.09
101
100
0.18
0.08
-0.03
96
101
0.21
0.14
-0.22
-0.08
(-1.98)
(-4.03)
(-7.89)
-0.10
-0.13
-0.17
(-1.69)
(-2.21)
(-2.74)
-0.04
(-3.41)
100
-0.05
-0.06
-0.06
(-5.95)
(-4.14)
-0.03
-0.08
-0.18
(-1.39)
(-3.36)
(-9.10)
0.01
-0.07
(0.21)
(-2.22)
(-2.81)
-0.04
-0.04
0.06
(-0.99)
(-1.01)
(1.07)
159
-0.08
Adj.R2
2 (16)
[p-value]
0.61
110.0
[0.00]
0.12
30.3
[0.02]
0.48
81.8
[0.00]
0.45
75.7
[0.00]
0.56
54.0
[0.00]
0.43
78.4
[0.00]
5. Conclusion
We investigate if there are valuation and operating performance gains from
international cross listing, using a sample of 55 Taiwanese firms that issued
deposit receipts for the first time in the US, the UK and Luxemburg from
1992 to 2009. We find strong evidence of negative valuation effects. DR
issuance is associated with a substantial decline in Tobins q and stock
returns during the three years after issue. We also find that operating
performance of DR issuers deteriorate and under-perform their benchmarks
substantially after issue. Our findings suggest that firms might time their
issue of depositary receipts strategically during period of strong stock price
and operating performance. The issuance of DR might be a useful signal of
the issuers value and operating performance thereafter. Further research
in this area is warranted.
Taiwan has been an emerging market not very accessible for
foreign investors for the best part of our sample period. Cetorelli and
Peristiani (2010) find that the US and the UK stock markets are far more
prestigious than the Taiwan market. Based on the market segmentation
hypothesis, the disadvantaged market hypothesis and the recognition
hypothesis of international cross listing, DR issuers from Taiwan should be
in a better position to reap valuation gains and other benefits by listing their
shares in these markets. Contrary to the predictions of these hypotheses,
we find that both the valuation and operating performance of Taiwans DR
issuers deteriorate and under-perform their benchmarks substantially after
issue.
listing might not be as significant as previously thought. Our results are of
practical relevance and importance and contribute to the current debate on
the costs and benefits of international cross listing.
This article examines the effects of international cross listing during
the three years after listing. It is of interest to investigate the effects in the
period longer than 3 years after DR listing. As many corporate events might
happen in such a long period, the effects of these events have to be
separated from that of DR listing and we leave this investigation for future
research.
References
Alexander, G., Eun, C., and Janakiramanan, S., 1987. Asset pricing and
dual listing on foreign capital markets: A note. Journal of Finance,
42(1), pp.151-158.
Alexander, G., Eun, C., and Janakiramanan, S., 1988. International listings
and stock returns: Some empirical evidence. Journal of Financial and
Quantitative Analysis, 23(2), pp.135-151.
160
Bae, G., Jeong, J., Sun, H., and Tang, A.P., 2002. Stock returns and
operating performance of securities issuers. Journal of Financial
Research, 25(3), pp. 337-352.
Baker, H.K., Nofsinger, J.R., and Weaver, D.G., 2002. International crosslisting and visibility. Journal of Financial and Quantitative Analysis,
37(3), pp.495521.
Bancel, F. and Mittoo, U., 2001. European managerial perceptions of the
net benefits of foreign stock listings. European Financial Management
Journal, 7(2), pp.213-236.
Barzuza, M., 2009. Lemon signaling in cross-listings. University of Virginia
School of Law Working, The John M. Olin Program in Law and
Economics Working Paper, 40.
Benos, E. and Weisbach, M.S., 2004. Private benefits and cross-listings in
the United States. Emerging Markets Review, 5(2), pp.217240.
Bris, A., Cantale, S., Hrnjic, E., and Nishiotis, G., 2012. The value of
information in cross-listing. Journal of Corporate Finance, 18(2),
pp.207-220.
Cetorelli, N. and Peristiani, S., 2010. Firm value and cross-listings: The
impact of stock market prestige. Federal Reserve Bank of New York
Staff Reports, 474.
Charitou, A. and Louca, C., 2009. Cross-listing and operating performance:
Evidence from exchange-listed American Depositary Receipts.
Journal of Business Finance and Accounting, 36(1-2), pp.99-129.
Coffee, J., 2002. Racing over the top? The impact of cross-listing and stock
market competition on international corporate governance. Columbia
Law Review, 102(7), pp.1757-1831.
Dharan, B. and Ikenberry, D., 1995. The long-run negative drift of postlisting stock returns. Journal of Finance, 50(5), pp.1547-1574.
Dodd, O. and Louca, C., 2011. Shareholders wealth effects of international
cross-listings. Auckland University of Technology Working Paper.
Doidge, C., Karolyi, G.A., and Stulz, R., 2004. Why are foreign firms that
are listed in the U.S. worth more? Journal of Financial Economics,
71(2), pp. 205-238.
Domowitz, I., Glen, J., and Madhavan, A., 1998. International cross-listing
and order flow migration: Evidence from an emerging market. Journal
of Finance, 53(6), pp.20012027.
Eckbo, E, Masulis R.W., and Norli, O., 2000. Seasoned public offerings:
Resolution of the new issues puzzle. Journal of Financial Economics,
56(2), pp.251-291.
Errunza, V. and Losq, E., 1985. International asset pricing under mild
segmentation: Theory and test. Journal of Finance, 40(1), pp.105-124.
Errunza, V. and Miller, D., 2000. Market segmentation and the cost of
capital in international equity markets. Journal of Financial and
Quantitative Analysis, 35(4), pp.577600.
Fama, E. and French, K., 1995. Size and book-to-market factors in earning
and returns. Journal of Finance, 50(1), pp.131-155.
161
Fanto, J. and Karmel, R., 1997. A report on the attitudes of foreign

companies regarding a U.S. listing. Stanford Journal of Law, Business
and Finance, 51(3), pp.143-162.
Fernandes, N. and Ferreira, M.A., 2008. Does international cross-listing
improve the information environment? Journal of Financial
Economics, 88(2), pp.216-244.
Flavin, T.J. and OConnor, T.G., 2010. The sequencing of stock market
liberalization events and corporate financing decisions. Emerging
Markets Review, 11(3), pp.183-204.
Foerster, S. and Karolyi, G.A., 1998. Multi-market trading and liquidity: A
transaction data analysis of CanadaU.S. inter listings. Journal of
International Financial Markets, Institutions, and Money, 8(2), pp.393412.
Foerster, S. and Karolyi, G.A., 1999. The effects of market segmentation
and investor recognition on asset prices: Evidence from foreign stocks
listing in the United States. Journal of Finance, 54(3), pp.981-1013.
Foerster, S. and Karolyi, G.A., 2000. The long-run performance of global
equity offerings. Journal of Financial and Quantitative Analysis, 35(4),
pp.499-528.
Fuerst, O., 1998. A theoretical analysis of the investor protection
regulations argument for global listing of stocks. [online] Available at:
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=139599>
[Accessed 01 September 2013].
Goto, S., Watanabe, M., and Xu, Y., 2009. Strategic disclosure and stock
returns: Theory and evidence from U.S. cross-listing. Review of
Financial Studies, 22(4), pp.1585-1620.
Gozzi, J.C., Levine, R., and Schmuckler, S., 2008. Internationalization and
the evolution of corporate valuation. Journal of Financial Economics,
88(3), pp.607-632.
Huddart, S., Hughes, J., and Brunnermeier, M., 1999. Disclosure
requirements and stock exchange listing choice in an international
context. Journal of Accounting, and Economics, 26(1-3), pp.237-269.
Karolyi, G.A., 1998. Why do companies list shares abroad? A survey of the
evidence and its managerial implications. Financial Markets,
Institutions and Instruments, 7(1), pp.1-60.
Khurana, I.K., Martin, X., and Periera, R., 2008. Cross-listing and firm
growth. Review of Finance, 12(2), pp.293-322.
Khurshed, A., Paleari, S., and Vismara, S., 2003. The operating
performance of initial public offerings: The UK experience. University
of Manchester Working Paper.
King, M.R. and Segal, D., 2009. The long-term effects of cross-listing,
investor recognition, and ownership structure on valuation. Review of
Financial Studies, 22(6), pp.23932421.
Lee, D., 2003. Why does shareholder wealth increase when non-U.S. firms
announce their listing in the U.S.? University of Kentucky Working
Paper.
162
Lins, K., Strickland, D., and Zenner, M., 2005. Do non-U.S. firms issue
equity on U.S. exchanges to relax capital constraints? Journal of
Financial and Quantitative Analysis, 40(1), pp.109-133.
Loughran, T. and Ritter, J., 1995. The new issues puzzle. Journal of
Finance, 50(1), pp.23-51.
Loughran, T. and Ritter, J., 1997. The operating performance of firms
conducting seasoned equity offerings. Journal of Finance, 52(5),
pp.18231850.
McLaughlin, R., Safieddine, A., and Vasudevan, G., 1998. The information
content of corporate offerings of seasoned securities: An empirical
analysis. Financial Management, 27(2), pp.31-45.
Merton, R., 1987. Presidential address: A simple model of capital market
equilibrium with incomplete information. Journal of Finance, 42(3), pp.
483510.
Moel, A., 1999. The role of information disclosure on stock market listing
decisions: The case of foreign firms listing in the U.S. Harvard
Business School Working Paper.
Myers, S. and Majluf, N., 1984. Corporate financing and investment
decisions when firms have information that investors do not have.
Journal of Financial Economics, 13(2), pp.187-221.
Pagano, M., Panetta, A., and Zingales, L., 1998. Why do companies go
public? An empirical analysis. Journal of Finance, 53(1), pp.27-64.
Reese, W. and Weisbach, M., 2002. Protection of minority shareholder
interests, cross-listings in the United States, and subsequent equity
offerings. Journal of Financial Economics, 66(1), pp.65-104.
Sarkissian, S. and Schill, M.H., 2009. Are there permanent valuation gains
to overseas listing? Review of Financial Studies, 22(1), pp.371-412.
Sarkissian, S. and Schill, M.H., 2012. The nature of the foreign listing
premium: A cross-country examination. Journal of Banking & Finance,
36(9), pp.2494-2511.
Werner, I. and Kleidon, A., 1996. U.S. and U.K. trading of British crosslisted stocks: An intraday analysis of market integration. Review of
Financial Studies, 9(2), pp.619-64.
163
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

Valuation and Operating Performance Gains

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Valuation and Operating Performance Gains

Diunggah oleh

Hak Cipta:

Format Tersedia

Eurasian Business Review, 3(2), 2013, 137-163

ARE THERE VALUATION AND OPERATING PERFORMANCE GAINS

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Our findings suggest that the potential benefits of international cross

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

international cross listing, as findings of the contrary would cast stronger

2.2. Measuring Valuation Effect of DR Issue

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

The other benchmark is Tobins q of the matched firm. The matched

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

calculated as net income/equity), cash flow returns on asset (CFROA,

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Figure 1. Mean of the unadjusted Tobins q around DR listing: Whole

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 2B. Descriptive statistics of unadjusted performance measures:

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 3A. Descriptive statistics of industry-adjusted performance

Table 3B. Descriptive statistics of industry-adjusted performance

Note: Confer note of Table 3A

Table 3C. Descriptive statistics of industry-adjusted performance

Note: Confer note of Table 3A

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 4A. Descriptive statistics of matched-firm-adjusted performance

Note: Confer note of Table 3A

Table 4B. Descriptive statistics of matched firm-adjusted performance

Note: Confer note of Table 3A

Table 4C. Descriptive statistics of matched firm-adjusted performance

Note: Confer note of Table 3A

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 5A. Effects of DR issue on Tobins q: Whole sample

Panel A. Unadjusted Tobins q

Panel B. Industry-adjusted Tobins q

Panel C. Matched-firm-adjusted Tobins q

Note: Effect on Tobins q is estimated by the following equation:

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 5B. Effects of DR issue on Tobins q: Luxemburg sample

Panel A. Unadjusted Tobins q

Panel B. Industry-adjusted Tobins q

Panel C. Matched-firm-adjusted Tobins q

Note: Confer note of Table 5A.

Table 5C. Effects of DR issue on Tobins q: Non-Luxemburg sample

PreYear relative to DR issue

Panel B. Industry-adjusted Tobins q

Panel C. Matched-firm-adjusted Tobins q

Note: Confer note of Table 5A.

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

3.2. Valuation Effects Measured by Holding Period Returns

Results for the Luxemburg listing subsample and Non-Luxemburg

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Table 6B. Effects of DR issue on holding period returns: Luxemburg

Note: Confer note of Table 6A.

Table 6C. Effects of DR issue on holding period returns: NonLuxemburg sample

Note: Confer note of Table 6A.

3.3. Valuation Effects Measured by Cumulative Abnormal Returns

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Note: Figures in parentheses are t-statistics. Superscripts a, b and c denote significant at

4. Evidence on Operating Performance Effects

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

Figure 2. Mean of the unadjusted ROA and ROE around DR listing:

J.D. Hwang / Eurasian Business Review, 3(2), 2013, 137-163

performance measures using the whole sample, the Luxemburg subsample