Market Segmentation and the Cost of theCapital in International EquityMarkets

Abstract

While theoretical models predict a decrease in the costof capital from depositary receipt offerings, theeconomic benefits of this liberalization have beendifficult to quantify, Using a sample of 126 firmsfrom 32 countries, we document a significant declineof 42% in the cost of capital. In addition, we showthe decline is driven by the ability of U.S.investors to span the foreign security prior tocross-listing. Our findings support eh hypothesisthat financial market liberalizations havesignificant economic benefits.