Does Issue of Oversea Depositary Receipt Reduce Financial Constraints? - Evidence from Taiwan

This paper investigates if firms can ease their financial constraints by issuing oversea depositary receipts, using as sample Taiwan's listed companies that issued DRs for the first time from 1992 through 2009. Panel data and cross-section fixed-effects model are employed for empirical analysis. The effect of DR issue in easing financial constraints is compared with that of the seasoned public offerings in Taiwan's equity market. We also investigate if the effect depends on the capital influx from DR issue and the timing of DR issue. We find that Taiwan's listed companies can reduce their financial constraints by issuing DRs, but they cannot do so by undertaking the seasoned public offerings in the domestic equity market. Moreover, the effect is not caused by the capital influx from DR issue. We demonstrate that its effect is most likely driven by the prestige and visibility gain from cross-border listing, which gives the DR issuers greater and easier access to capital markets. Finally, our results suggest that Taiwan's listed companies can still garner prestige and investor recognition by issuing DRs and reduce their financial constraints as a result, despite Taiwan has liberalized its financial markets and improved its corporate governance practices substantially.