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The Long-Run Performance of Global EquityOfferings

Published online by Cambridge University Press:  06 April 2009

Stephen R. Foerster  and
G. Andrew Karolyi
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Abstract

We investigate the long-run return performance ofnon-U.S. firms that raise equity capital in U.S.markets. Overall, between 1982 and 1996, our sampleof 333 global equity offerings with U.S. depositaryreceipt (ADR) tranches from 35 countries in Asia,Latin America, and Europe under-perform local marketbenchmarks of comparable firms by 8%–15% over thethree years following issuance. We show thatdifferences in long-run returns are related to thescope and magnitude of investment barriers thatinduce segmentation of capital markets around theworld. While companies from markets with significantinvestment barriers for foreigners that issue equityon major U.S. exchanges outperform their benchmarks,those from segmented markets that issue equity inthe U.S. by way of Rule 144A private placementssignificantly under-perform. We also show thatinter-market competition for order flow in thepost-issuance period affects long-run returnperformance. Post-issuance buy-and-hold abnormalreturns are most significantly and positivelyrelated to the offering's ability to generate alarger share of U.S. trading volume.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 4 , December 2000 , pp. 499 - 528
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Richard Ivey School of Business, University ofWestern Ontario, and Fisher College of Business,Ohio State University, respectively. We aregrateful for data assistance from Rick Johnston,Jay Ng, Christo Pirinsky, and Brian Wieser. Forbackground information and data, we thank VinceFitzpatrick, Dori Flanagan, and Joe Velli at Bankof New York. We are grateful for comments fromCraig Dunbar, Gunther Gebhardt, John Griffin, KentHargis, Mark Huson, Jonathan Karpoff (the editor),Jan Krahnen, Anath Madhavam, Darius Miller, RenéStulz, Rex Thompson, Theo Vermaelen, IngridWerner, and an anonymous referee. Comments byseminar participants at Alberta, Arizona State,Cornell, Darden, Laval, Ohio State, SouthCarolina, USC, Virginia Tech, York, and at theNorthern Finance Association, Georgia TechInternational Finance, Frankfurt/Wharton RaisingCapital in Other Nations, Canadian InvestmentReview Global Investing, and European FinanceAssociation conferences are gratefullyacknowledged. We thank the Dice Center forFinancial Economics, Social Sciences andHumanities Research Council of Canada, and theRichard Ivey School of Business for financialsupport. Any remaining errors are our own. Addresscorrespondence to: G. Andrew Karolyi, FisherCollege of Business, Ohio State University,Columbus, Ohio 43210-1144. Phone: (614) 292-0229,E-mail: karolyi@cob.ohio-state.edu.

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