We investigate the long-run return performance of non-U.S. firms that raise equity capital in U.S. markets. Overall, between 1982 and 1996, our sample of 333 global equity offerings with U.S. depositary receipt (ADR) tranches from 35 countries in Asia, Latin America, and Europe under-perform local market benchmarks of comparable firms by 8%–15% over the three years following issuance. We show that differences in long-run returns are related to the scope and magnitude of investment barriers that induce segmentation of capital markets around the world. While companies from markets with significant investment barriers for foreigners that issue equity on major U.S. exchanges outperform their benchmarks, those from segmented markets that issue equity in the U.S. by way of Rule 144A private placements significantly under-perform. We also show that inter-market competition for order flow in the post-issuance period affects long-run return performance. Post-issuance buy-and-hold abnormal returns are most significantly and positively related to the offering's ability to generate a larger share of U.S. trading volume.
* Richard Ivey School of Business, University of Western Ontario, and Fisher College of Business, Ohio State University, respectively. We are grateful for data assistance from Rick Johnston, Jay Ng, Christo Pirinsky, and Brian Wieser. For background information and data, we thank Vince Fitzpatrick, Dori Flanagan, and Joe Velli at Bank of New York. We are grateful for comments from Craig Dunbar, Gunther Gebhardt, John Griffin, Kent Hargis, Mark Huson, Jonathan Karpoff (the editor), Jan Krahnen, Anath Madhavam, Darius Miller, René Stulz, Rex Thompson, Theo Vermaelen, Ingrid Werner, and an anonymous referee. Comments by seminar participants at Alberta, Arizona State, Cornell, Darden, Laval, Ohio State, South Carolina, USC, Virginia Tech, York, and at the Northern Finance Association, Georgia Tech International Finance, Frankfurt/Wharton Raising Capital in Other Nations, Canadian Investment Review Global Investing, and European Finance Association conferences are gratefully acknowledged. We thank the Dice Center for Financial Economics, Social Sciences and Humanities Research Council of Canada, and the Richard Ivey School of Business for financial support. Any remaining errors are our own. Address correspondence to: G. Andrew Karolyi, Fisher College of Business, Ohio State University, Columbus, Ohio 43210-1144. Phone: (614) 292-0229, E-mail: email@example.com.