Ch. 6: Security Offerings 321
Sushka, and Lai, 2000) and a negative announcement effect in Hong Kong (Wu and
Wang, 2006b). The sample-weighted average market reaction to standbys is signifi-
cantly negative:ARsr=− 1 .32%.
Third, the market reaction to private placements is consistently positive and large
across countries. The largest reported impact is in Sweden, whereCronqvist and Nils-
son (2005)report a market reaction of 7.2% across 136 placements, followed by Japan
with approximately 4% (Kato and Schallheim, 1993; Kang and Stulz, 1996), and the
U.K. with 3.3% (Slovin, Sushka, and Lai, 2000). Significantly positive effects are also
reported for private placements in Hong Kong (Wu, Wang, and Yao, 2005) and Norway
(Eckbo and Norli, 2004). The sample-weighted average market reaction across these
private placement studies is a significantARpp= 3 .12%, which is close in magnitude
to the average market reaction to private placements in the U.S.
Fourth, with the exception of Japan and France, the relatively expensive firm com-
mitment underwriting method has not yet spread internationally. BothKang and Stulz
(1996)andCooney, Kato, and Schallheim (2003)report a small but statistically sig-
nificant, positive average market reaction for Japan, whileGajewski and Ginglinger
(2002)reports a statistically insignificant market reaction to firm commitment offerings
in France. The sample-weighted average is an insignificantARfc= 1 .10%. Whether
this surprising result holds up in samples of Japanese SEOs after 1992, as well as in-
ternationally as other countries start to adopt the firm commitment method, remains an
interesting issue for future research.
Finally, while not shown inTable 14, recent papers have studied the average mar-
ket reaction when firms announce foreign exchange listings—either foreign firms in
the U.S. via American Depository Rights (ADRs) and U.S. firm globally via Global
Depository rights (GDRs).Chaplinsky and Ramchand (2000)compare the stock price
reactions of 349 global equity issues (involving a simultaneous sale of common equity
at the same offer price in the U.S. market and one or more international markets) with
459 domestic equity issues that are sold exclusively in the U.S. market during 1986–
- They find that all else equal, the negative stock price reaction that accompanies
equity issues is reduced by 0.8 percent on average for global offers compared to domes-
tic offers of similar size, issued during the same time period.^37
Subsequent papers have confirmed the finding ofChaplinsky and Ramchand (2000)
that firms announcing global issues have a lower stock price reaction as compared to
announcements of domestic (U.S.) equity issues. For example,Wu and Kwok (2002)
find that announcements of global equity issues result in a percentage point lower stock
price reaction relative to comparable domestic issues.Errunza and Miller (2003)doc-
ument that global equity offerings of foreign firms after their initial cross listing in the
United States have a reduced stock price reaction (less by 1.5 percent) as compared to
stock price reaction to SEOs of similar firms on the local exchanges.
(^37) This result is based on a Heckman two-step procedure to adjust for selection bias. They also find that the
announcement effect is more favorable as the number of new foreign investors rises. Also seeFoerster and
Karolyi (2000)for information on ADR SEOs.