DR are convertible back to ordinary shares, following a process dependent upon the sponsoring facility that created the instrument.
This is primarily due to market inefficiencies and structures required to maintain the integrity of registered shares within specific jurisdictions (typically regulatory driven).
The academic literature has identified a number of different arguments to cross-list abroad in addition to a listing on the domestic exchange.
Roosenboom and Van Dijk (2009)[1] distinguish between the following motivations: There are, however, also disadvantages in deciding to cross-list: increased pressure on executives due to closer public scrutiny; increased reporting and disclosure requirements; additional scrutiny by analysts in advanced market economies, and additional listing fees.
Some financial media have argued that the implementation of the Sarbanes-Oxley act in the United States has made the NYSE less attractive for cross-listings, but recent academic research finds little evidence to support this, see Doidge, Karolyi, and Stulz (2007).
Doidge, Karolyi, and Stulz (2004)[5] show that companies with a cross-listing in the United States have a higher valuation than non-cross-listed corporations, especially for firms with high growth opportunities domiciled in countries with relatively weak investor protection.
Doidge, Karolyi, and Stulz (2004) argue that a cross-listing in the United States reduces the extent to which controlling shareholders can engage in expropriation (through "bonding" to the high corporate governance standards in the United States) and thereby increases the firm's ability to take advantage of growth opportunities.
Recent research,[6] shows that the listing premium for cross-listing has evaporated, due to new U.S. regulations and competition from other exchanges.
They also highlight the incomplete understanding of why firms cross-list outside the UK and the United States, as many of the arguments discussed above (enhanced liquidity, improved disclosure, and bonding) do not apply.