افشای داوطلبانه، شفافیت، و کیفیت بازار: شواهدی از بازارهای در حال ظهور ADRs

Extant research has also documented the relatively inferior legal and political environment for governance that obtains in several emerging market countries. When firms from emerging markets cross-list their equity in major international markets they have to mandatorily improve their disclosure levels in accordance with the stringent requirements of regulators and stock exchanges. The work of Bacidore and Sofianos [Bacidore, J.M., Sofianos, G., 2002. Liquidity provision and specialist trading in NYSE-listed non-US stocks. Journal of Financial Economics 63 (1), 133–58] provides evidence that companies from emerging markets face much higher adverse selection costs when they trade their ADRs in the U.S. Using the recently available disclosure scores developed by Credit Lyonnais Securities Asia (CLSA), we find that companies from emerging markets that issue ADRs have significant cross-sectional differences. This finding suggests that firms have incentives to increase the level of voluntary disclosures. One such incentive could be their improved liquidity when they trade in markets, such as New York stock exchange and Nasdaq. Using a market microstructure framework, this paper examines empirically whether there exist cross-sectional differences in effective spread, depth and adverse selection component of spread that are related to disclosure quality. Our empirical evidence indicates that firms with higher disclosure scores have significantly lower adverse selection component of spread ceteris paribus. There appears to be an information premium for firms with lower disclosure quality. Voluntary disclosures by managers seem to have a beneficial impact on the firm's liquidity.

“Foreign companies are getting at our capital without having to conform to our higher disclosure standards” laments Fredric E. Russell who heads an investment management firm in Tulsa, OK. 1 Although all foreign firms that wish to list securities on an U.S. exchange or Nasdaq must register them under the Securities Exchange Act of 1934, the financial reporting requirements are less stringent as compared to U.S. companies. For instance, foreign companies may report semiannually rather than quarterly. Moreover, they do not have to report segment data, and also do not have to prepare a full set of financial statements in accordance with U.S. GAAP. Instead, foreign issuers are required to provide annually, on Form 20-F, a quantitative reconciliation of non-U.S. GAAP net income and shareholders’ equity to U.S. GAAP amounts. A possible outcome of the less stringent disclosure regime of foreign securities listed and traded on U.S. exchanges is that investors and market makers are faced with increased information asymmetry. If indeed information asymmetry is worse for foreign issues, then insiders and other traders with better access to information have incentives to exploit their advantage to the detriment of outsiders. However, Chowdhry and Nanda (1991) develop a model which shows that the principal features of U.S. security markets, such as rapid public dissemination of price information and better monitoring of insider trading deter informed trading. Bhattacharya and Daouk (2002) in a comprehensive study on insider trading in the major markets of the world conclude that although over 80% of the emerging markets and all the developed markets have laws against insider trading, persecutions are much less common. Only 25% of the emerging markets have had persecutions based on insider trading laws. Thus, informed traders who wish to exploit their informational edge have incentives to concentrate their trades in the home countries of cross-listing stocks. Previous studies on international cross-listings by Forster and George (1994) and Barclay et al. (1990) indicate that most informed trading in foreign companies’ shares occur in the home markets of these firms. Although prior research indicates that information asymmetry is higher in the case of ADRs as compared to domestic firms, the regulatory environment in the U.S. is not conducive for elevated levels of insider trading. It appears that insiders with substantial informational advantage have incentives to concentrate their trades in the home countries of firms issuing the ADRs. Empirical evidence on information asymmetry of ADRs as compared to U.S. stocks is mixed. The work of Bacidore and Sofianos (2002) indicates that non-U.S. stocks have wider spreads, less depth, and greater transitory volatility than U.S. stocks ostensibly due to higher information asymmetry and increased adverse selection risk. Clarke and Shastri (2001) find a similar effect for ADRs from emerging markets. However, Alford and Jones (1998) report that adverse selection component of foreign stocks that trade on Nasdaq are not significantly larger than a comparable U.S. sample. The divergent results can possibly be attributed to the variations in the sample firms and home countries of the firms listing their ADRs in the U.S. markets. Furthermore, there could be differences in the quantity and quality of disclosure. The objective of this paper is to examine the impact of disclosure level on information asymmetry of ADRs traded in U.S. markets. It is possible that foreign firms voluntarily disclose more information than the mandatory minimum prescribed by the regulators. We explore this issue in this paper. A rich body of empirical literature confirms that cross-listing in the U.S. improves the information environment of the typical foreign firm.2 For instance, Reese and Weisbach (2002) find that firms cross-listing on U.S. markets raise more capital in local markets subsequent to their U.S. listing, suggesting that firms cross-list in order to bond themselves to more transparency even in their home market. To the best of our knowledge, there is no study that relates disclosure level of a firm issuing ADR to its market microstructure. Thus, our paper is motivated on filling this gap. In this paper, we focus on the market microstructure impact of cross-sectional variation in disclosure levels of emerging market firms listing their ADRs in U.S. stock markets. Our objective is to contribute to the emerging literature on international corporate governance—specifically with regard to financial reporting and disclosure on several dimensions. First, we would like to examine if firms from emerging markets are rewarded for additional voluntary disclosure beyond the minimum levels mandated by regulation. A second contribution would be the assessment of the relevance of disclosure metrics provided by rating agencies.3 If disclosure scores are not “priced”, then the additional costs incurred by firms in improving the level of disclosure is not accompanied by envisaged benefits. Finally, our research has implications for emerging market firms that seek to increase their liquidity through an increase in disclosure levels. The rest of the paper is organized on the following lines. The next section describes the disclosure environment of firms listing their ADRs during the post-listing period. We explore the theoretical and methodological issues pertaining to the relationship between voluntary disclosure and market microstructure in Section 3. We describe our empirical results in Section 4. The final section contains our conclusions.

As compared to firms in developed countries, companies in emerging market countries contend with lower accounting standards. Prior research has shown that the process of ADR issuance has the beneficial impact of improving the disclosure environment of foreign firms. Such improvements were largely the consequences of the more stringent regulatory requirement of the Securities and Exchange Commission of the U.S. In spite of the more rigorous disclosure standards that foreign firms have to comply with after their ADR issuance, significant cross-sectional differences in disclosure quality are observed. Investors in ADR issues face additional challenges due to cross-sectional differences in firm-level disclosure quality, variations in mandatory accounting standards across countries, and the quality of legal protection available to minority shareholders. We examine empirically whether there exist cross-sectional differences in market microstructure variables, such as effective spread, depth, and adverse selection component of spread that are related to disclosure quality.We find empirical evidence indicating that firms with higher disclosure scores have significantly lower adverse selection component costs ceteris paribus. The results have implications for investors, managers of firms and regulators. Ita appears that market participants are able to clearly distinguish firms with higher disclosure quality from others and incorporate that information into liquidity variables. There appears to be an information premium for firms with lower disclosure quality. Voluntary disclosures by managers seem to have beneficial impact on the firm’s liquidity. Regulators must encourage efforts by independent research agencies, such as CLSA to disseminate information regarding disclosure quality and other governance measures to investors and other stakeholders. It is likely that such measures will lead to a voluntary improvement in disclosure quality and other governance variables of firms from emerging countries.