The long-run performance of global equity offerings

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 m arket benchmarks of comparable firms by 8%-15% over the three years followi ng issuance. We show that differences in long-run returns are related to th e scope and magnitude of investment barriers that induce segmentation of ca pital markets around the world. While companies from markets with significa nt investment barriers for foreigners that issue equity on major U.S. excha nges outperform their benchmarks, those from segmented markets that issue e quity in the U.S. by way of Rule 144A private placements significantly unde r-perform. We also show that inter-market competition for order flow in the post-issuance period affects long-run return performance. Post-issuance bu y-and-hold abnormal returns are most significantly and positively related t o the offering's ability to generate a larger share of U.S. trading volume.