Market Segmentation and the Cost of Capital in International Equity Markets

Authors

Vihang R. Errunza, Desautels Faculty of ManagementFollow
Darius P. Miller, Finance DepartmentFollow

Publication Date

8-13-1998

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 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.

Document Type

Article

Disciplines

Finance

DOI

10.2139/ssrn.99833

Source

SMU Cox: Finance (Topic)

Language

English