My note yesterday about cancelled American Depositary Receipts (reprinted by seekingalpha.com) did not give full information about delisted stocks and lots of readers wrote to complain about others. Daimler AG, the carmaker was one cited by JF. Other readers cited stocks which were acquired like SkillSoft, Cadbury, Sadia, Lipman. Since they provided an orderly way for the ADR holders to exit with an offer for either cash or shares, they don’t count as problems.
According to an academic study, there “has been a significant increase over time in the number of U.S. listings by non-U.S. companies. Before 1986, 104 non-U.S. companies were listed on the NYSE or NASDAQ. Between 1986 and 1996, another 540 non-U.S. companies listed on these two markets. We subdivide the ADR firms between those from developed markets and those from emerging markets using the International Finance Corporation (IFC) classification. There is an acceleration of listings toward the end of the 1986-1996 period, particularly for listings from emerging markets. Companies from developed markets constitute an overwhelming majority of the listings through 1990. After this time, emerging markets account for one-third to one-half of new ADR listings.”
The study concluded that firms from countries with less-developed external capital markets and with more limited rule of law benefit most from a U.S. listing, at least with respect to their investment to cash flow sensitivity.
Of course German or British firms are from developed capital markets, which may be why they are exiting because of costs and regulations like Sarbanes-Oxley. Recall that many European companies were caught paying bribes under Sarbox rules, including Siemens and ABB, both of which maintain their ADRs, and Deutche Telekom which cancelled its program.
The study treated New York shares and Canadian stocks with dual listings as ADRs, which added to the numbers from developed countries. Most Canada stocks do not have a depositary, merely a market-maker who acts across the border.
New York shares are from companies which act as their own depositary, famously Royal Dutch Shell but also other Dutch companies (Dutch law is particularly favorable to allowing companies to trade their shares outside the Dutch market.
After Shell unifyied its British and Dutch shares, it now has three listed variants, A shares, B shares, and Johnny-Come-Lately ADRs. This must incur costs for the oil company but presumably the benefit of being able to tap the US financial market makers this worthwhile. Shell today launched a program for owners to reinvest their dividends in new shares, whether they own the Dutch or the British variants.
The study quoted is “Do non-U.S. firms issue equity on U.S. stock exchanges to relax capital constraints?” by Karl V. Lins (Univ. of Utah School of Business), Deon Strickland (Ohio State College of Business, Mark Zenner (Salomon Smith Barney and Univ. of No. Carolina Business School.
More for paid subscribers starts below with a sad confession, just in time for Yom Kippur which begins at sundown, and other news of our companies most from the drug sector, but also about steel, energy, banks, and software.
