Launching an ADR programme still makes sense for non-US corporates in spite of the additional reporting burden imposed as a result of Sarbanes-Oxley, according to new research.
Analysis from Oxford Metrica, the UK-based strategic advisor, shows that American depository receipts continue to boost domestic share price despite the harsher regulatory environment.
The research reveals that launching a depositary receipt (DR) – a US security representing a non-US company’s publicly traded equity – can increase domestic share price by up to 10% in one year. Regulatory changes in the US also mean investors are giving greater credence to non-US companies willing to abide by US regulatory practices. While the launch of an OTC depositary receipt in the US – exempt from complying with US GAAP – can increase domestic share price by just under 10%, a listed depository receipt increases this figure to over 10%.
The greater accountability of a level two-to-three listing, according to Deborah Pretty, principal at Oxford Metrica, means US investors have greater confidence in non-US companies willing to submit to US regulations: “Initially some companies may be fearful of the additional disclosure, but that’s precisely the source of value. Additional disclosure isn’t costless, but it conveys a strong signal of superior governance to the market.”
Introduction of the Sarbanes-Oxley Act in July 2002 has heightened the sensitivity of US investors, so any listing – and transparency – is seen as a plus mark. Pretty continues: “It is relevant. It’s likely that Sarbanes-Oxley would increase the value effect initially as greater financial disclosure was forthcoming. However, the context is not static. The initial premium you get for additional, voluntary disclosure is likely to decrease over time as regulators formulate new rules for transparency.”
