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Market Segmentation and the Cost of Capital in International Equity Markets

Vihang R. Errunza and Darius P. Miller
The Journal of Financial and Quantitative Analysis
Vol. 35, No. 4 (Dec., 2000), pp. 577-600
DOI: 10.2307/2676256
Stable URL: http://www.jstor.org/stable/2676256
Page Count: 24
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Market Segmentation and the Cost of Capital in International Equity Markets
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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.

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