Equity Market Response to Form 20-F Disclosures for ADR Firms

  •  Michael Senteney    
  •  David Senteney    
  •  Mohammad Bazaz    


Non-U.S. companies may list securities in U.S. stock exchanges, provided that they file a set of audited financial statements as well as comply with extensive SEC disclosure requirements. We speculate that non-U.S. firms who choose to be listed in the major U.S. exchanges will comply with the supplemental disclosure requirements in order to have the supplemental disclosures impounded in the home country equity share price via the ADR share price in the manner described by Fishman and Hagerty (1989). We investigate the information content of non-U.S. firm’s earnings released vis-à-vis the SEC Form 20-F filings in both ADR and home country equity share markets. We employed models of the ADR and equity security share earnings release date abnormal returns controlling for the incremental firm-specific SEC Form 20-F disclosures required of exchange listed ADRs. Our results suggest that both ADR and home country equity share markets exhibit abnormal returns associated with the earnings release date. Particularly noteworthy, however, is the association between magnitudes of U.S. GAAP earnings and magnitudes of SEC Form 20-F filing date. Abnormal returns are significantly larger than the association between magnitudes of reported earnings and earnings report date abnormal returns in both the ADR and home country equity share markets. Our results seemingly suggest that the U.S. ADR share market’s response dominates the cross-market information flow, driving the home country equity share market response in a manner consistent with the notion that U.S. GAAP conveys price relevant information beyond reported earnings for non-U.S. firms.

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