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We examine the decision to list in the U.S. markets by foreign firms through American Depository Receipts (ADRs). There is a high positive correlation between the valuation of existing ADRs and the number of new ADR listings next year. ADR listing is more likely when existing ADRs are valued higher. The subsequent operating and stock performance of ADR firms listed in hot years is significantly worse than those of ADR firms listed in cold years. These results are consistent with the hypothesis that market timing is an important motivation for foreign firms to list in the U.S. equity markets.

We examine the valuation of ADR IPOs and find that they are valued similarly to U.S. domestic IPOs but significantly higher than U.S. seasoned firms. This higher valuation is not caused by differences in firm size, growth opportunity, profitability, listing exchange, diversification benefit, foreign exchange risk, investor protection, or market liquidity as suggested by previous studies. Moreover, they experience significant declines in earnings and their stocks underperform U.S. seasoned by more than 20% in the three years after IPO. We show that ADR IPOs are timed to take advantage of overoptimistic in U.S. equity markets, supporting windows of opportunity theory.

We examine whether alleviating financial constraints is one of the motives for non-U.S. firms to cross-list in stock markets in the United States. Using payout ratio, payout level, and WW index (Whited and Wu, 2006) as measures of financial constraints, we find that firms with higher financial constraints are more likely to cross-list in the U.S. This pattern is driven by small firms, which tend to be financially constrained. After firms cross-list, they significantly increase their payout ratio and payout level. Small firms have more increases in payouts than large firms. WW index decreases for small firms after cross-listing. Tests about cash flow sensitivities of cash also suggest that the decline in financial constraints is more significant for small firms. Overall the results suggest that relief from financial constraints may be an important motive for cross-listing, especially for small firms.