Corporate Governance and the Choice of ADRs?--Evidence from 4 Asian Tigers
The purpose of corporate governance is to create a mechanism of checks and balances. Under the separation of management and ownership, managers’ behaviors are aligned to the interests of shareholders, corporate fraud is alleviated, effective and efficient management is assured, and corporate social responsibility can be carried out. In recent years, a growing number of firms involved in the corporate scandals have used window dressing to make financial statement more attractive. This creates the awareness of the importance of corporate governance among governments in various countries, who start to improve the law and enforcement of corporate governance. As capital market becomes more liberal and globalized, multinational companies start to expand their business in the global market by cross listing in international capital market, which requires stricter corporate governance compliance. Some researchers focused on the relationship between corporate governance and firm performance. Other researchers explored the effects of company characteristics and external governance on the choices of depositary receipts. This study explores the relationship between corporate governance (board composition, CEO characteristics, insider ownership, and board committee) and ADR listing choices based on four Asian tigers. The country-level result shows that companies from weaker investors’ protection countries tend to choose level II and level III ADRs. For corporate-level result, we showed that companies with bigger size and greater earning prefer level II and III ADR listings. As for governance-level result, we found that companies with better corporate governance are more likely to choose Level I and 144A. Our results showed that ADR listing choices are affected by external governance environment, company characteristics, and internal corporate governance. In other words, companies choose different ADR types for different purposes.
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