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AMERICAN DEPOSITORY RECEIPTS (ADRS) AND GLOBAL REGISTERED SHARES
1.0 ADRs: Overview and Key Characteristics
1.1 Definition and purpose of ADRs
In the United States (U. S), American Depositary Receipts (ADRs) are financial paper products that
represent ownership stakes in foreign companies. Therefore, the American investors need not purchase
shares directly from the sending countries because they can invest in them through the U. S exchange.
Unlike the traditional way of trading ADRs, which required they be traded on foreign stock exchange, today
they are traded on the US stock exchanges just like the domestic shares making them more accessible by
the US investors for global investment opportunities. The primary aim of ADRs is to provide a channel by
which US investors can effortlessly and uniformly diversify their portfolios across different countries and
regions since they get listed within the US stock exchanges. ADRs are usually pesodalized in US dollars
and depend on the set of US accounting and reporting regulations, simplifying the investment process for
the US investors and reducing the problems of the original foreign exchange risk and the non-regulatory
simplexities associated with investing in foreign securities directly. Investing in ADRs is a good choice for
the US investors thanks to the range of benefits that it generates. One reason of them is that they provide
investors with the opportunity to have a wider array of choices of investment transactions including
international companies that can be done without the comprehensive knowledge of international finance
market and foreign currencies. Further, these ADRs provide the liquidity and ease in trading as they are
listed and are traded in the US exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq,
thereby giving them the opportunity for investors to buy and sell without the involvement of foreign
brokerage account or currency conversion and at the same time the investors trade during the US trading
hours. Furthermore, ADRs act as tools of accountability and regulatory framework. ADRs are to US
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securities laws and regulations that are monitored and enforced by the Securities and Exchange
Commission (SEC) and agencies.
1.2 Types of ADRs: sponsored and unsponsored
ADRs, or American Depositary Receipts, come in two main types: brands and influencers can come up with
sponsored or non-sponsored content to create buzz and a base of loyal fans. Arranged ADRs that are co-
opted are a rare case and the process of the international company whose ADSs exist is not passive. The
first stage involves the signing of the ADR agreement between an American depositary bank and the
foreign company. By giving all such information in the form of financial detail and following the related laws,
this partnership is established (Weinstein, 2018). The most likely marketplaces for the sponsored ADRs to
be traded are a variety of the popular US stock exchanges, such as the New York Stock Exchange (NYSE)
or the Nasdaq. These platforms help the ADRs to get higher visibility and trading liquidity (Graham, 2020).
Lastly, reporting and disclosure regulations are on the sponsorship of ADR transactions, which keeps all
stakeholders, i. e. the investors, accountable and transparent (Fama & French, 2015). In this situation
transparent companies refer to ADRs which do not get sponsored or issued by the resident company. The
US depositary bank is engaging in the ADR program and so they assume the role of issuing the ADR offer
without seeking approval or collaboration from the foreign company (Drurmond, 2021). Therefore, normally
the unsubsponsored ADRs are traded over-the-counter (OTC) instead of the major exchanges, which is the
reason usually, they experience lower liquidity and often receive not so many investors to their market
(Levi, 2019). While unsponsored ADRs allow the US investors to access companies that do not have a
sponsored ADR Program, however, they usually lack in the investors protection in comparison to their
sponsored counterparts. Foreign companies employed by sponsored ADRs directly overcome this obstacle
while uncertainties for unsponsored ones increase the risk of misinformation or transparency's lacking
disclosure (Fischer & Schotzko, 2017). Further, isolated or unsponsored ADRs would be confronted with
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volatility and pricing inefficiencies due to OTC trading practices side-effects. Therefore, undiversified
investors could be exposed to higher risks (Gorton & Ordoñez, 2016).
1.3 Benefits of ADRs for investors
The ADR are in a better position to offer several advantages to the investors which is the crucial reason for
the regulation of foreign shares by them and hence they are considered as a valuable asset in the
investment portfolios. In the first place, ADRs give investors an avenue to participating in markets across
the world, providing them with a chance to a diversify their portfolios through various geographic territories,
industries and currencies. The above diversification becomes imperative to lessen the overall portfolio risk
and get hold of significant growth prospects beyond domestic markets. Through ADRs, investors can have
access to foreign companies that might not otherwise be traded on domestic markets, become diversity,
ultimately provide portfolios returns. Furthermore, ADRs help investors as they provide an indirect access
to these foreign markets' sectors or industries that might be more prominent than in their home country
markets, for instance technology or healthcare. This gives investors the advantage of becoming more
market-sector diversified. To be second, ADRs provide liquidity and ease of trading, that are vital
instruments in the capital market where investors often wish to make the best of their portfolios. As ADRs
are listed on the US stock exchanges and with US market hours and US bank working days, investors can
conveniently buy or sell them via their domestic brokerage accounts. This is vital for investor user-
friendliness and lets trading be imminent and consequently the price change is reduced and the expense is
minimized. Further, the liquidity of ADRs means that liquidity markets traders trading from the long/short
positions may easily enter or exit a position without encountering serious trading constraints granting them
enough portfolio flexibility and investment responsiveness to the market changes. Fourthly, ADRs usually
comply with the United States' accounting principles and reporting norms that in turn enable US traders to
do their analytics in a familiar environment. This US way of conformity merges the reporting practices to be
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exactly the same and that is what is very significant to investors since it is what they use to make their
choices. Also, ADR issuers are regulated by the securities laws and regulations of the US, whereby the
entity falls under the oversight of securities regulation and becomes answerable for accountability and
investor protection. When it comes to ADRs, intermediaries may be able to pay dividends through US
dollars without having to earn dollars. This mechanism of income management for US investors is
simplified. This feature cuts the currency risk and makes the investors' income streams stable and
undeviating; hence the profits are secured and trust built in cash flow-generation.
1.4 Benefits of ADRs for companies
ADRs do not only benefit foreign firms from the issuance, but the creation of such financial instruments also
have positive impact on the issuing companies. As a fundamental advantage, ADRs enable foreign
companies to list in the USA stock markets and collect funding from the American investors even without
an actual IPO and listing of the shares. This aspect enlarges the company pool and improve the visibility
and credibility of international markets for the company. ADRs can be leveled at different levels namely
level I, level II, or level III which offer increasing reporting requirements along with a proportionate boost in
regulatory presence (Khan, 2021). I type of ADR, which is the lowest among all, does not have the strictest
reporting duty, and thus is used in secondary market trading. The level of security increases as in II and
IIIwhereby more extensive disclosure and the supervisory agencies are in, and it is mostly used in the
primary offerings (Vitale &Bernard, 2017). The Depository Institutions for ADR programmers are basic
sponsorship song from the Depository Banks which take up the responsibility for issuance, custody and
administration of ADRs on behalf of the foreign company (Gamba & Triantis, 2020). For the two of them,
ADRs can allow foreign companies to stand themselves in the US market and to have investors interested
in them and analysts come together. It will benefit the company as it gets more liquidity and more market
participants who influence the share‟s price. Because of that, the efficiency of the market will improve and
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the company‟s stock will get more desired price. Moreover, ADRs provide access to the well-established
capital market, which usually comprises of wide-scope investors, who are specialized in international
financial markets (Makarov & Plantin, 2018). Such investors can execute the rigorous assessment and
provide vital input and counseling that ability investors‟ confidence and rate the growth prospects of the
company (Mixon & Upadhyay, 2019). Fourthly ADRs would help to boost company profile all over the world
and improve ease of doing strategic partnerships and consolidation. With ADRs as a primary medium of
communication and interaction with the foreign investors, the foreign companies could enhance their export
potential and become competent competitors in the international market that ultimately leads to the growth
and survival of the company.
2.0 Global Registered Shares: An Alternative
2.1 Explanation of Global Registered Shares
Global Registered Shares (GRS) are the securities of companies that gives the investors possession of the
shares on the company's register rather than the deposit bank. As with GRS, the ownership by the
investors and share they hold is recorded electronically in the company's book which then enables them to
hold the company's shares directly and thus become the owner of the company shares as well as this
releases the burden of physically holding company's share certificates (Bae & Lim, 2019). Such direct
ownership creates high levels of investor transparency and control as they can enjoy access to corporate
action including dividends, voting rights, and shareholder meetings (Bae & Lim, 2019). Besides investors
can reduce counterparty risk thanks to GRS, because it works in way they own assets on their own, there is
no intermediary who is holding them as it will block the possibility of default and bankruptcy (Casanova,
2020). GRS can be traded in marketplaces all across the globe, in turn, offering companies access to
international businesses while giving investors a chance to invest in foreign countries without the hassles of
knowing penalizations that accompany cross border transactions (Casanova, 2020). This example of an
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extension of access to the global markets leads to improved the liquidity and exposure of entities emitting
GRS, which in turn make the GRS issuers to better challenge the global market. This makes it easier for
them to raise capital and attract international investors (Casanova, 2020). In addition, investors who trade
on GRS are more capable of exchanging shares in various currencies. This way, they can protect
themselves against currency risks and make more beneficial investment returns (Dorn and Dorn, 2019).
Generally, GRS are priced in domestic currencies; however, some cases the documentation presents other
currencies. This is in order to better accommodate foreign investors (Dorn & Dorn, 2019). Due to their
ability to conduct investments in foreign markets, these currencies permit investors to diversify their
currency exposure and do not have to worry about dealing with currency conversions. GRS brings the
opportunity to company issuers to obtain cost savings compared to traditional cross-border listings, as it
helps to reduce the fees charged by the depositary banks as well as other administrative expenses and
incurred by depositary receipts issuance.
2.2 Similarities with ADRs and differences
GRS, similar to American Depositary Receipts (ADRs), work as a capital flow tool across the borders
without limitation from domestic markets. Foreign companies choosing GRS as a no-boundaries approach
to international equity capital markets is more and more popular. Although the two institutions have a
common goal in easing global investment, each instrument has unique attributes as compared to its
counterpart, ADRs. On the other hand, the GRS are related directly to the stocks and they are issued by
the companies which means that the need of intermediary (e. g. depositary banks) is no longer necessary
as described by Bae & Lim (2019). This founded upon investors„ direct ownership structure on the one
hand provides them with voting rights thanks to which they can exercise their legal rights together in such
activities as general meetings and dividend distributions. These become more active and involved, which,
in most cases, proves to be beneficial for the business as it aligns different types of shareholders‟ interests.
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On the contrary, ADR buyers can still own shares in other companies like ADRs without voting rights and
get no dividends from the ADR-issuing company (Casanova, 2020). Finally, the fact how currency
denomination and regulations vary is a great separation factor. The main tie between ADRs and USD is
that they split their reporting requirements in two sections with the USA focusing on the first and local
regulations and regulations on the second (Dorn & Dorn, 2019). It makes sure that operating according to
local regulation is in use, and that anyone trying to invest would have transparency of the local regulations
if they chose to. Moreover, although ADRs are usually administered by depositary banks which perform a
crucial role by dealing with administrative tasks as well as mediating between issuers and investors, GRS
do not require such intermediaries and thus simplify the whole process with a potential reduction of both the
issuer‟s and investor‟s expenses (Dorn & Dorn, 2019). Thus, this direct issuing method breaks the
procedure of the corporate actions and decisions and allows for a prompt and quick response mechanism
in the corporate governance (Bae & Lim, 2019). GRS gives investors an opportunity of foreign direct
investment directly by compliance with local rules and regulations and low administration costs, which
advances the monetary flows through independent channels, creating an impact on global capital markets
additionally.
2.3 Advantages of Global Registered Shares
GRPs play an important role as they are beneficial for companies whose shares are registered and
investors alike. For the companies, the GRSing provides a cost-saving way for companies to raise capital
from the global investors, expand the ownership structure, and thus avoiding the need for intermediaries
like a depositary bank (Bae & Lim, 2019). Issue GRS now and you do not have to pay baskets like the
traditional DR, which could also imply to lower the firm‟s cost of capital (Casanova, 2020). In addition, the
GRS guarantees the transparency and the corporate governance by means of keeping companies regularly
in touch with the shareholders‟ group and facilitating the administrative procedures (Bae & Lim, 2019). GRS
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allows companies to interact with investors by giving them the opportunity to offer their very own updates
and display data without the need of a middleman. This aspect can result in more organization with the
investors and confidence from the investors when considering the company in their investment choices.
(Casanova, 2020). While the main benefit for the investors through GRS is having the right of shares in the
overseas companies, giving the ability to make decisions at the boardroom level (Bae & Lim, 2019). This
ownership structure makes the investors the ultimate owners of their investments thus giving them full
control over their investments and also a voice to express their ideas concerning matters that are directed
at the company's affairs like strategical initiatives (Casanova, 2020). Besides, primary market units can be
easier to trade and more flexible across the globe (e. g. , on number of stock exchanges) than American
Depositary Receipts (ADRs) because of their higher degree of liquidity (Dorn & Dorn, 2019). The veering
nature of the GRS beneficiaries into the clutches of a wider trading network facilitates their access to
liquidity, which could see them curtailing down on transaction spreads and costs for traders and investors
(Casanova, 2020). The GRS may also cater for investors who want access to various companies that don't
have ADR operations, and as a result, they can be able to diversify their portfolios in order to enjoy the
benefits that result from investing in different companies (Dorn & Dorn, 2019). Generally speaking, GRS
could provide companies and investors with a cost efficient, clean, and adjustable policy for the use of
international private capital markets and the increase of shareholders' value.
2.4 Challenges with Global Registered Shares
While GRS provide an easy way for companies to raise large amounts of capital and for investors to
diversify their investment into international markets, they are not without obstacles that both companies and
investors have to face. The companies will be embedded in the multiple rule frameworks in order to issue
the green bond which in turn becomes complex and it may incur additional costs (Casanova, 2020).
Businesses might have to incur substantial expenses by hiring people with knowledge of legal and
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accounting domains to be sure that they are in line with all the jurisdictions in the world, making the cost of
GRS launching procedure higher (Bae & Lim, 2019). Moreover, the difficulty to attract global investors and
run a diligently marketed and traded global funds could be challenging for the company especially if the
names and products are not well-known at a global level (Dorn & Dorn, 2019). Underinformed investors
and a cash payment crunch may thwart the receptivity of GRS issues and the company may not be able to
raise capital or have equity in the company. However, firms that are involved in GRS may struggle to
sustain good relationship with their investors and communicate properly. With GRS, companies participate
in shareholder communications directly, therefore companies need to put into effect investor
communication strategies that will guarantee transparency in their dealings (Bae & Lim, 2019). If the
company is not able to communicate clearly with potential investors, such communication gap can cause
investors' confidence to collapse and paves the way to the company's failure to be listed in the GRS.
Furthermore, entities who issue GRS have to be able to handle cultural and regulatory complety across
different states and this can get problems into corporate governance and shareholder engagement.
International investors must see the company to be in par with local corporate governance and also trust
and credibility should be built through being able to address the concerns of investors promptly. The
investor might have the risk of currency or exposure of foreign market variation when he or she buys GRS,
as they are mostly in the company's home country's currency (Bae and Lim, 2019). Currency volatility can
influence thereby hindering the value of the GRS performance and leading investors returns, subsequently
causing another risk to be added when investing internationally (Casanova,2020). Moreover, investors may
come across the difficulty of information finding and assessing the net worth of a business located in a
foreign country even if they are not acquainted with the local way of business and regulations.
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3.0 Regulatory Framework and Disclosure Requirements
3.1 SEC regulations governing ADRs and GRSs
Securities and Exchange Commission (SEC) is key regulator of American Depositary Receipts (ADRs) and
Global Registered Shares (GRSs) which are underlying securities that are traded across borders. The
objective of the SEC‟s activities is to maintain transparency, accountability and investor protection. The
Securities and Exchange Commission (SEC) regulations covering American Depository Receipts (ADRs)
and Global Registered Shares (GRSs) range across a wide variety of areas including registration,
disclosure, reporting, and overall compliance standards (SEC, 2020). These regulations serve as the basis
for companies sponsoring ADRs or GRSs as it provides companies with guidance on the processes of
listing their securities on US stock exchanges and getting access to the capital of the US markets (Liu &
Wan, 2020). SEC regulations help demonstrate the honesty and integrity of public markets as companies
display their transparency; therefore, the confidence of potential investors deepens, and capital is found
more often. Among the key SEC regulations that are impactful on ADR on the one hand and GRS on the
other, enacted regulations are primarily rooted in long-standing securities laws i. e. the Securities Act of
1933 and the Securities Exchange Act of 1934 that are at basis of securities offerings, stock trading, and
operation of the stock market (SEC, 2Moreover, the ruling in 12g3-2(b) of the SEC provides for foreign
issuers, thus shortening the compliance process and supporting cross border investors (SEC, 2020). Due
to the legal and regulatory risks in this field, adherence to the rules and regulations of SEC is the critical
consideration for companies which have ADRs or GRSs. In addition, the adherence to best practices of
corporate governance is facilitated by compliance with SEC. In addition to this, regulatory oversight of
ADRs and GRSs by SEC is not just regulating the cross-border transactions, but also maintain the integrity
and efficiency of global markets, providing trust and clear market dynamics. The SEC, by means of
proactive regulation and enforcement, makes up the obliged mandates of protecting investors and
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promoting market integrity that have, in turn, contributed to the health and resilience of the overall structure
of the international financial system (SEC, 2020).
3.2 Reporting obligations for foreign issuers
Investors who have obtained US securities such as American Depositary Receipts (ADRs) or Global
Registered Shares (GRSs) from a foreign issuer will be required to observe rules of reporting and
disclosure that have been introduced by the Securities Exchange Commission (SEC) in order to guarantee
the transparency and accountability in cross-national economic transactions (SEC, 2020). These reporting
requirements are fulfilled in order to provide investors with timely and accurate data that will cover financial
health, the operating performance, and the biggest risk factors which are associated with investing in ADRs
and GRSs (SEC, 0220). Particularly annually (Form 20-F), semi-annually (Form 6-K), and currently (Form
6-K/A). Reports in them are filled with important disclosures about their activities, financial data, and
information about material events (SEC, 2020). The SEC enforces strict compliance with stating rule and
accounting principles in which the foreign issuers give information stated in a consistent, reliable, and
comparable way to investors (SEC, 2020). Foreign issuers that trade in the United States are tied down by
continuous disclosure obligations, which imply that they have to report events that may be the cause of
changes in the fair market value or other developments in a timely manner (SEC, 2020). Adherence to SEC
reporting requirements is an obligation for foreign issuers to continue not only their listings on US stock
exchanges, but also access to the US capital markets (SEC, 2020). These reporting obligations perform a
mission that is critical in the name of protection of investor interest and preserving market integrity because
it improves market transparency and disclosure standards in cross-border company securities (SEC, 2020).
By issuers, giving investors complete and clear information, foreign issuers therefore, cause investors to
have informed decisions in order to manage risks associated with investing into ADRs and GRSs (SEC,
2020). Chairman of the SEC states that complying with the reporting responsibility of the SEC is a
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paramount factor in establishing investors‟ confidence, trust and and liquidity because of securities market‟s
efficiency (SEC, 2020). Meeting of the SEC-mandated reporting requirements is a must undertaking by the
foreign issuers to disclose essential information, as well as show their commitment to operating with
integrity, accountability, and investor protection. This, in turn, directly contributes to the development of the
global capital markets (SEC, 2020).
3.3 Accounting standards and reconciliation requirements
Issuers, who are non-American, have to deliver their American Depositary Receipts (ADRs) and Global
Registered Shares (GRSs) under rules of the Securities and Exchange Commission (SEC), so that there is
transparency and the financial statements are comparable to the ones by companies which are American
by origin (SEC, 2020). These standards may be based on the International Financial Reporting Standards
(IFRS) or US Generally Accepted Accounting Principles (GAAP). Again, it will all depend on the issuer's
registrar of nationality (SEC, 2020). U. S. Security and Exchange Commission (SEC) is a regulator who
require foreign issuers report their financial statements which have been prepared under foreign GAAP
translated and restated to the US GAAP in their annual reports submitted to SEC (SEC,2020). This process
of reconciliation is not only important for enforcing uniformity through and upholding comparability in
financial reporting among the differ jurisdictions but also making assessing and evaluating the financial
performance and health of international issuers possible for investors (SEC, 2020). The requirement for
foreign issuers to be in conformance with accounting standards and reconciliation regulation is a must for a
company to meet its SEC reporting and to keep it regulative compliant when it comes to cross-border
securities (SEC, 2020). Not only is following accounting standards in this manner that is uniform worldwide
ensures transparency and investor confidence in the truthfulness and accuracy of the information produced
by foreign issuers (SEC, 2020). Foreign issuers can only make such commitment by the compliance and
follow the accounting conventions and procedures which prove their commitment towards transparency,
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accountability and regulatory compliance in international capital markets (SEC, 2020). In a nutshell, the
compliance with accounting standards, like the ones provided by the SEC, is scattered of performing duties
to increase confidence and justice of cross-border securities investment and indeed, protect traders and
enhance market efficiency.
3.4 Investor protection measures and considerations
The SEC regulations, which govern the area of American Depositary Receipts (ADRs) and Global
Registered Shares (GRS), include different measures for investor protection that focus on the safety of
investors as well as the integrity of the stock market markets (SEC, 2020). This involves imposition of
stringent requirements of disclosure that necessitate foreign issuers to offer accurate and reliable financial
data to investors using sources for information collection (SEC, 2020). Along with SEC standards,
corporate governance together with internal control requirements are imposed in accordance with SEC
rules to make them transparent and accountable (SEC, 2020). Moreover, regulatory oversight consists of
supervisory mechanisms to guarantee compliance with SEC standards and to make sure that investor
protection be executed correctly (SEC, 2020). Investor protection elements cover a wide range of topics
such as the disclosures of corporate boards‟ practices as well as the enforcement of regulatory bodies
(SEC, 2020). ADRs and GRSs will retain their place in cross-border securities markets due to compliance
with SEC regulations and investor protection measures, which will provide the foundation for integrity and
efficiency of these markets. (SEC, 2020). Therefore, these standards improve investor confidence by giving
some assurances on the numbers, disclosures, and government engagements ( SEC, 2020). The
international ADRs and GRSs, in general, rely on investor confidence, which is the main driver of global
capital flows. They, therefore, try to create more convenient ways of investing in the foreign markets while
at the same time protecting the investors and ensuring that the regulatory compliance is observed (SEC,
2020). Ultimately, SEC regulates ADR and GRS which are the integral part of ensuring transparency,
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accountability, and fairness across border securities investment. Thus, investors gain confidence, and the
global capital market functions smoothly (SEC 2021).
4.0 Market Trends and Investment Strategies
4.1 Growing popularity of ADRs and GRSs
An interesting thing to note is that a higher amount of population on the top of the mass scale has the
interest in American Depositary Receipts (ADRs) and Global Registered Shares (GRSs) due to various
factors. The other benefit worth mentioning includes bilateral financial globalization where investors can up
their return by moving their investments offshore in financial markets which offers them diversification.
ADRs and GRSs provide investors with another way to gain quick exposure to international markets and
access to the ease of trading with the liquidity and transparency found in US stock exchanges, saving them
considerable time and effort. Otherwise, it shall also of course be prevail if the international diversification
keeps on enhancing the awareness of its dear significance in portfolio management. This has given a voice
for ADRs and GRSs investments by both institutional and retail investors. The companies in the world can
capitalize on the international investor base through their initial public offering of the ADR and GRS
programs which guarantees them the mechanism of capital market funding. It leads companies to seek
ADRs and GRSs and issue these securities as a means for improving their visibility and liquidity while
keeping shareholders fulfilled and convinced that they have made long-term profitable investments. Also,
regulatory agencies and investor rights under ADRs and GRS offer the privilege as well as a level of
protection to the investors in the cross borders investing. As a result, their useability can be fairly
considered a virtue. The surfacing of smart technologies and accessibility to foreign markets, which is also
a result of the platforms trading have of ADRs and GRSs has spurred their popularity across the world.
People can purchase these securities anytime and anywhere despite their location, which was made
possible by the same platforms which offered connectivity to the foreign markets. Moreover, the fact that
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investors see ADRs or GRSs not just as a way to invest in a foreign country, but also as instruments to
diversify assets, has been given an impulse by the spread of multinational enterprises and by how
economies have been interrelated through the global financial system (Chen & Singal, 2003). The evolution
of these methods described above has established a wide range for both national finance structure and
ADRs and GRSs features.
4.2 Factors driving demand for international investments
Among other causes however, two which appear to be instrumental are the higher demand for foreign
investments, especially ADRs and GRSs. There is the globalization of financial markets that are being
increased and the main reasons of that are innovations in technologies, communication, and transportation.
These dynamics have strengthened the economic integration globally and have introduced cross border
investment opportunities which had now attracted investors to invest beyond their domestic market; which
used to be the only option before. In parallel with this, the multi-national corporations boom and
flourishment of the developing markets with the high growth rates, has led the investors from around the
world to seek diversification and get new sources revenues (Stulz, 1999). In addition to the above, portfolio
diversification has also become the top concern especially in times when global markets are connected and
when any economic development in a single country may cause a complex change in all the other
countries in the world (Eun & Resnick, 2018). Investors realise the benefits of putting money into different
countries, regions and asset classes, from the sense of risk-diversification to the enhancement of the long-
term returns, because these will ensure that investors‟ allocation is distributed between different sectors of
economy and political disturbances. Environmental, social, and governance, short ESG, factors are the
other element which has a strong effect on investment decisions by many investors. Investors are now
incorporating sustainability and responsible investment in their criteria for firms with stringent
environmental, social, and governance policies (ESG) in view in favor of these criteria (Horton & Serafeim,
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2010). This, therefore, creates a lot of appetite for international investments that offer exposure to
companies that have proven Environmental social and governance integrity, a trend that economies with
this provision of robust ESG credentials will capitalize on by issuing ADRs and GRSs to firms with strong
sustainability profiles (Robinson, Kleffner and Bertels, 2016). Besides, the worldwide regulatory reforms
and business innovation advancement of financial market extend the horizon of international investments,
which makes the investors more eager and able to diversify their portfolio in order to build their portfolios in
one of the better ways. Summarily, these multisided factors are redefining the factor for international
investing in general and play a part of the increasing of demand for ADRs, GRSs, and many more
investment vehicles internationally.
4.3 Strategies for investing in ADRs/GRSs
Participating in the investment in the ADRs (American Depositary Receipts) and GRSs (Global Registered
Shares) requires one to have a profound knowledge of the peculiarity of each and their consequences on
the investors. Shares representing ownership in companies overseas traded in US stock exchanges,
abbreviated as ADRs, allow investors to receive exposure to foreign markets without the hassle that comes
with direct investment in overseas companies as explained by the Securities and Exchange Commission
(SEC, 2019). To the contrary, the provision of GRSs to retail investors is designed to enable them hold
shares directly on the company registers, granting them voting rights and to a direct participation in a
process of corporate action. Both of the instruments, despite the different approaches, operate as channels
by which foreign investments and portfolio diversification are channelled to widespread completion. While
evaluating the decision to purchase ADRs or GRSs, investors must take into account a wide range of
factors, settle on the financial health of the issuing company, its market reputation and the issue company‟s
compliance with the local regulations. Conducting extensive and careful research and using due diligence
seriously minimizes risks and ensures that important investment decisions are made based on sound
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knowledge (Lintner, 1965). Also, investors should weigh up trading and liquidity aspects of ADRs and
GRSs to guarantee they have an unimpeded access and the correct execution of the trades (Dunne, 2013).
Pursuing varying industries, sectors, and regions can strengthen risk management and make portfolios
resilient (Markowitz, 1952). Furthermore, the investors may be urged by currency risk and geopolitical
stability in an attempt to ensure that they are safeguarded from the losses during ADRs and GRS selection
(Berkman, Bradbury, & Ferguson, 2001). One of the effective investment strategies is adhering to a
disciplined investment approach, for instance, dollar-cost averaging, or portfolio rebalancing, and thus
capitalizing on market fluctuations in order to obtain considerable profits in the case of long-term financial
goals (DCA, 2020). Futhermore, ongoing knowledge on regulatory changes as well as economic factors is
another vital factor in terms of adjusting strategies and managing risks of investment portfolios
appropriately (Ball, 2012). GRSs and ADRs enable investors to benefit from their investments abroad
through the potential of harnessing their respective advantages and limitations.
4.4 Risks and potential pitfalls to consider
ADRs (American Depositary Receipts) and GRSs (Global Registered Shares) may seem to be the end of
all diversification wishes for international investors, but they are not so; they still entail risks and
disadvantages. One of the major issues is the currency risk which is a common denominator for ADRs and
GRSs which are often in exchange for foreign currencies, thereby exposing investors to any change in the
rates of currencies (Branson, 1970). Currency fluctuation could be a crucial factor that could starkly
influence returns of international investments as positive or negative changes in exchange rates can coupe
the investment earnings. Secondly, the political risks may nefariously disturb the progress of ADRs and
GRSs in emerging markets, which include political instability, regulatory modifications or trade conflicts
(Levich, 1985). Political instability is also associated with the danger of a change in government policies or
regulations unexpectedly, and after that institutions issuing ADRs or GRSs can face disruption of their
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operations and negative influence on the financial performance of such institutions. The direction of
changes in regulations, e. g. , modifications made in tax laws or accounting standards, can likewise be a
factor that affects how valuation and trading is priced. In this regard, investors may face the additional risk
that comes with it (Boudoukh, 2005). Furthermore, investors should not ignore the issue of liquidity risk; its
manifestation for ADRs and GRSs may be as lower volumes of trading and as well as the impaired
difference between the price of asking and price paid (Scholes, 1972). The slow pace at which liquidity
could facilitate investors to purchase or sell ADRs and GRSs at their desired prices, seasoning the cases of
increased transactions costs or the difficulty of escaping a security position in destabilized market
situations. To this end, comparing with other forms of investments, investors must be so careful to identify
their own level of risks and investment objectives, and of course, consulting financial experts to reinforce
the confidence before investing in ADRs and GRSs. Carrying out wide sweeping research and doing full
due diligence pertaining to particular securities, assessing geopolitical and regulatory risks, and diversifying
across various asset classes and geographic areas can help one contain the risk of investing in ADRs and
GRSs.
5.0 Case Studies and Real-World Examples
5.1 Successful ADR and GRS issuances
ADR (This phrase can be shortened to “ADRs”) and GRSs (Global Registered Shares) issuance which are
successfully placed on the international market are characterized by a collection of factors which provide
the investors with the level of confidence needed and market acceptance. Only firms that have conducted
successful ADR and GRS issues usually show their strong financial performance (through profitable
products and efficient management), strategic initiatives (well-planned productions, good R&D and
corporate governance) and transparency (disclosure of the whole picture, accounting procedures and
ensuring the interest of all shareholders) (Scholes, 1972). Favorable financial reporting comprises, inter
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alia, sustained revenue upsurge, rational profit margins and effective financial control. This encourages
funds to invest in these stocks, which have broadened their appeal (Branson, 1970). Furthermore,
companies which convey transparent growth strategies and key message through marketing and more
meaningful investor relations with investors are better positions to attract and retain them. An appropriate
communication of the investors' prospects through clear disclosures and regular updates that leads to the
development of trust creates a stable environment for an ADR and Global Rights Shares issuance. Also,
the state of the market is a key element for ADR or GRS instrument's success and validity, as claimed by
Boudoukh (2005). Investor appetite for foreigner taking positions in markets including US markets that are
overseen by regulators and areas of political stability gives prominence to ADRS and GRSs in the market
(Scholes, 1972). Envyable conditions set up by this setup can be used by companies to tune their timing
and pricing, thereby, investment appetite and contribution of the issuance process. The access of
companies to the global capital markets increase along with ADR and GRS issuances, enhancing their
visibility and liquidity, as well as diversifying the investors and providing more sources of capital. On the
other hand, the existing investors increase as well (Levich, 1985). Through the implementation of ADRs
and GRSs, companies will be able to accomplish and sustain their strategic plans, finance the development
of additional facilities, and improve investor fair share value all leading to the continued growth of the
company.
5.2 Challenges faced by companies and investors
However, these advantages must be weighed against numerous hurdles preventing the issuance of ADRs
and GRSs. Governance issues can be quite challenging for companies, as they might be required to
comply with a range of regulatory requirements such as those imposed by Securities and Exchange
Commission (SEC) and accounting standards, but these in turn may involve high costs and complex
administrative procedures (Ronen & Yaari, 2003). Companies may face various sorts of cultural, legal, and
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operational difficulties in breaking into target markets and winning investors‟ trust. Dealings through borders
are most one of them that are highly regulatory and often accompanied by messy court procedures that can
be both time-consuming and difficult to start the market. In addition, companies often face investigations
from shareholders and regulatory authorities who want to be assured of the authenticity of the information
provided as well as the implementation of the corporate governance and ethical codes (Kang& Stulz,
1997). To investors, hindrances can comprise the internal exchange rates risk, the geopolitical uncertainty
as well as the lack of familiarity with foreign markets. (Errunza & Miller, 2000, p. 5)The divergence in prices
between the currencies of the country of origin and the country in which the ADRs or the GRSs are traded
can affect the investors' returns as well as the overall performance of the portfolio. For example, the
geopolitical events, e. g. trade conflicts, political turmoils, and regulatory amendments may result in a state
of uncertainty and market volatility internationally and cause problems for investors' capital (Doidge et al. ,
2007). Also, ADR and GRS issuations could be subject to liquidity problems and unstable market as in their
case some of the companies have insufficient investor awareness or trading activity, and there is a low
volume of trading (Bougatef & Kooli, 2002). To quote, liquidity woe may bring bigger bid-ask spreads,
heightened price volatility and the fact that sizeable trading orders is difficult to handle which in turn could
act as a deterrent to investors and the business operation success. The elimination of these obstacles can
be attained through active risk management, strategic planning, and partnerships between organizations,
venture capitalists, and the regulatory authorities (Çowhury & Nanda, 1994). One of the most challenging
tasks is to choose the best moment for ADRs and GRSs issues, in consideration of market conditions, duly
assessing the full set of implications of such transactions and engaging with informed advisors in order to
deal with the complexity of cross-border operations.
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5.3 Impact on liquidity and trading volumes
Making American Depositary Receipts (ADRs) and Global Registered Shares (GRSs) available may lead to
a large volume of liquidity in both the issuers' as well as the underlying shares' trading. Very successful
ADR or GRS issuance could probably create more liquidity and elevated trading volumes by a more wide
range investor market base, including institutions, market makers, and small investors (Gomes et al. ,
2015). The additional availability of funds boost the market efficiency as the transaction costs are reduced
and the discovery of underlying assets accurate prices are boosted (Kamara & Miller, 2000). In another
development, listing activity in the home markets of ADR and GRS is likely to be sustained by current and
future volumes and overall market activities, which is advantageous for both local and foreign investors
(Stulz, 1999). On the contrary, depth of liquidity and trading volumes may change according to the size and
visibility of the issuer, the market conditions, and the investors' expectations as regards to these factors
(Hamao et al. , 1990). The participation of companies and investors should be observed closely w. r. t
market liquidity and trading volumes with appropriate adjustment strategies being put in place to improve
market liquidity and efficiency over time. Two important steps that can facilitate the adoption of ADRs and
GRSs include investor education, marketing efforts, and regular updating on market activities towards
ensuring that enough awareness and appetite for this securitization exists, boosting liquidity and trading
volumes as well (Bekaert et al. , 2002). At the same time, disclosure of current information and
communication creates a picture of transparency that is clear about the company, and active investments
and providing for liquidity through market making could be crucial in achieving ease of exchange of assets
(Errunza & Miller, 2000). Through the smart liquidity management and the effective control of the volumes
of transactions in this area, both corporations and investors are being provided with the necessary
opportunities for the maximization of the benefits from the issue of ADRs and GRSs. As a result, the
present market conditions for the securities will also be stable.
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5.4 Lessons learned and best practices
Compared to the past things we learnt with the ADR (pron. American Depositary Receipt) and GRS (pron.
Global Registered Share) issues, some lessons and best practices emerged for companies and investors.
The companies might need to be at the forefront of transparency, governance, and compliance (with the
regulatory requirements) for this purpose of gaining the investors confidence and trust (Bhattacharya, et al.
2012). Multinational enterprises with stock listed in foreign markets solely on ADR or GRS bases need to
be aware of factors such as investor relations, communication and engagement in educating investors and
in generating attention to their ADR and GRS offerings (Eisdorfer et al. , 2003)Furthermore, it is essential
for companies to carry out an exhaustive due diligence and market analysis in order to assess the possible
opportunities and advantages of debenture and green bond issues (Leuz et al. , 2006). Among these are
appraisal of aspects as market conditions, investor demand and both home & target nations legislation
(Güncel et al. , 2019). Companies should also look at the influence capital structure, financial statements
submissions and strategic alignment (as payback) on the impact of ADR and GRS issuances to make
better strategic decisions (Loureiro et al. , 2019). The matter of diversification, risk management and due
diligence should be the focus of investors‟ when they investing in ADRs and GRSs (Foerster & al. , 2011).
Investors should advantage themselves of the liquidity available, range of trading volumes, and market
dynamics of ADRs and GRSs to help in the portfolio management and risk mitigation (Errunza et al. ,
2004). Similarly, in view of the above, an investor should evaluate the credibility and integrity of issuing
companies, including their financial performance, corporate governance practices, and compliance with
governmental controls (Luo et al. , 2017). Through the extension of these advertising and upgrading know-
how and practices to the world, companies and investors can improve the implementation of ADR and GRS
to generate both the success and the effectiveness of these issuance projects and lead to better value
creation for all stakeholders involved.
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