The Impact of International Listings on Liquidity Evidence from the Indian Stock Market” ‘Manoj Kumar Research Scholar Shailesh J Michta Scoot of Management Tian Fasunue of Tecanology Powat Bombay 400076, ind ‘mans thems and Shabtoldh M. Saudagaran Head, School of Aceon ‘Astinr Andersen Allan: Professor College of Business Administration (Okishoma Stare Univers Sallwate, OK 74078, USA, Tei ba05 7435125 Sakiskolsinecd Shatlesh J. Mehta Scho! of Management Indian Insitute of Tecnology Pons, Bosibay 400076, Tndia ‘n7mwiith eruetinAbstract* Between May 1992 and Jume 2001, seventy-two Indian companies tapped the international capital maskets with their equiv offerings in form af Depositary Receipts (DRS). Tally most of these progtams were m form of Global Depossaay Reeeips (GDRs) and were ‘raged on London and Luxembourg sock exchanges. Since 1999 mauy Indian companies have ben listing their American Depositary Receipts (ADRs) on the US. sock exchanges. Home snasker responses 10 issuance of DRs are of interest to the pokey makes, investors, market intemedianes, CFOs and finance scholars Policy makers im emergmg makers axe increasingly concemed about the consequences for the domestic equty market when Companies list stocks absoad. Present paper asestes the impact of listiag of ADRSGDRs on the liquidity of the fiom’s underving domestic shares by using a semple of 30 Indan DR programs tat listed on the foreign markets between Ist January, 1996 aud 30 June, 2001 Consistent with the theoretical asserions and results of Domowitz, Gles and Madhavan (1998), we record mixed results wile ADRs lisings m mast cases redace the herd of the omestic undening shares. GDR listings mm most cases ineease the liguity of the domesue vuderlyang shares. 7 Tis pope Gave Davy fou te ce slag davon seventh work of Manoj Kiaus w Shale J Deb Sohoolof Mansgenet odin asi of Tecsolog Boke, Actors aye chai to Preece. M Blsie of ean teste of Techaslogy. Bombay fr his advice acd el soma onthe sri eso of = pape, Theft ator aku edge the par laacial suport of www AClClrevearcheenreorg fx elated Edy by authors ied, “Why Do Faus Lit Aboud? Evidence fo au Eaeping Mit”1. Introduction The Giobatizaion of Indian capital makes ts accelerated in the past decade Inceasing anbers of Indian fine have chorea to raise capial by assum aad lung te ‘Depostary Reesips (DRS) on the foceign markers As of 30% Tans 2001, seveny-teo Todas compemes have sssned and fisted thes § DR programs on the foreign markets. Many otter Idan companies ae planning or in process of listing ther DR program in the near Soice The overall resexich question of the present study ist Hae the foreign listing of shares of Toda companies form of ther DR prograns made a signiicant impact on the Higuy of | ‘he underlying domestic shares of these companies? Theorenealy, Hsing on the fixeign makers showd help in reducing the megane Jmpacts of capil market segnentaton’ eo Sams’ shares listed on the domestic maukets However, wading on multiple markers may cause fagmeatation of wading volumes as has been pouted out by Amid and Mendelson (1995). In a recent study Domowiz, Glea and ‘Madhavan (DGM, 1998) asset, “Though comporsions view cros-Lisings as valve enlancins. the changes in the liquidity and wolliy, and the cost of wading associated with order foe ‘migroton following crose-listing may adveely affect we quabty of he domestic market Such changes are especially important for emersing mavkets fcing new competiion fiom syell-esblished highly liquid markets abrond and are the source of increasing concem among poliymakers” Therefore the iucresing number of DR programs dom eneteme counties may ibibit the development of their domestic equity makets. is possible that large and strangest companies from these contries may rely more on the foreign markets and ence, the fading acuvuy on thex domesie exchanges will be resuiced to only small aud Aiud seve’. The issue of ampact of forage Isinz 1s also atmately related to the ‘managenal decision making process. Managers perceive that foregn Listing enhance te Liquidity of Gams stocks mm the domestic makers and thereby reduce tie cost of wading in the stock (Mito, 1992 and Bakes, 1992), ‘The empitcal smdies done so far lave found thar ihe affect of foreign Listing on lugidity vanes wath fina specific, issue specific, market specific and country specific factors. ‘DGM (1998) eonclnded thatthe informanoaal linkages between host and a domeste market ply a vit role m detemmnng the fil impact of the foreign hangs. Ta a recent paper Karoyl (1598) surveyed the empiical Iteatue on foreign lising and found maxed evidences = while 2 majority of smdies observed an increase in liquidity, 2 few smidies also recorded decrease in guidiy. We present a detaled theoretical Gamework and a sevew of exsing pirical Ineramne in Section $ af hi say In the present sudy we analyze dhe anpact of foreign lisings ox Ligwdty by taking 2 mixed sample of ADRs and GDRe from an emerging marke? of India. The major existing sudies of impact of foreign Tsing on the underiing domestic shares fave ten their somples Som te large and liquid markets such as Briem, Canada, Jagan and US. The focus of diese snies is either the ADRs listings from the developed mackets on the US. auakets er the US comporate equity stings on the other well-developed markets (Our stay oxainly moticsted by the paucity of similar stiles in context of Indian