The ex-dividend day behavior of American depository receipts

We compare the ex-dividend day stock returns and trading volume of foreign stocks that trade in US markets as American Depository Receipts (ADRs) with the ex-day returns and volume of a matched sample of US stocks. This experiment allows us to investigate whether differences in the way dividends are...

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Bibliographic Details
Published in:Journal of multinational financial management 2004-02, Vol.14 (1), p.1-18
Main Authors: Gorman, Larry R, Mahajan, Arvind, Weigand, Robert A
Format: Article
Language:English
Subjects:
American depository receipts
Dividends
Ex-dividend day
Finance
Financial economics
Foreign exchange
Foreign exchange risk
Globalization
Payments
Stock returns
Trade
U.S.A
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Summary:We compare the ex-dividend day stock returns and trading volume of foreign stocks that trade in US markets as American Depository Receipts (ADRs) with the ex-day returns and volume of a matched sample of US stocks. This experiment allows us to investigate whether differences in the way dividends are paid and/or foreign currency risk affect the stock returns and trading volume of ADRs on the ex-dividend day. If these factors inhibit dividend capture in ADRs, then ADRs should earn larger ex-day returns than US stocks, and their ex-day trading volume should be lower. We present evidence consistent with these hypotheses. The results of a cross-sectional regression analysis of ex-day returns and volume are not consistent with a foreign exchange risk premium suppressing dividend capture in ADRs, however, suggesting that differences in dividend payment policies account for the lower level of dividend capture in ADRs.
ISSN:1042-444X
1873-1309
DOI:10.1016/S1042-444X(03)00035-5