Varma, 1991, "On the Integration of International Capital Markets: Evidence of Euroequity
Offerings," Financial Management 20, 11-21.
Regarding equity issues, Maxx, Trimble and Varma (1991) found, after controlling for characteristics of companies choosing to finance with Euroequity, a negative stock market responses.
L./Varma, R., On The Integration of International Capital Markets: Evidence From Euroequity Offerings, Financial Management, Winter 1991.
Euroequity, the focus of this paper, is a recent financial innovation applying the targeted registered offering procedure to corporate stock.
This paper provides an empirical test of capital market integration using Euroequity. In perfectly integrated capital markets, whether a corporation chooses to issue Euroequity or domestic equity should not have a differential effect on the price of its stock.
We test capital market integration by comparing the two-day announcement returns of 32 Euroequity with 196 domestic-equity offerings by American corporations during the period 1985-1988.
Section II outlines the expected stock-price effects from issuing Euroequity by associating it with previous research on international listings.
We assume that the motivations of corporations issuing Euroequity are similar to those for issuing government bonds under the targeted registered offering procedure.
(3) Euroequity also makes it easier for foreign investors to hold stock in U.S.
They may benefit because transactions costs are lower; because the foreign-listed stock is traded in their home currency (whereas Euroequity is denominated in dollars); because there may be reductions in information barriers if the foreign listing results in additional financial disclosure offshore; and, according to Smith .
On the other hand, since it is a bearer instrument with a liquid secondary market, Euroequity does not dismantle the registration barrier.