Price Transmission Effect between GDRs and Their Underlying Stocks—Evidence from Taiwan

In this paper we examine the price transmission effect between ADRs or GDRs and their respective underlying stocks. This linkage is investigated for Granger causality using difference form and VECM. Results reveal unidirectional causality from Taiwan's capital market to the foreign market. This asymmetry suggests the domestic market plays a dominant role in price transmission relative to the foreign market. Besides, the prices of both markets will make adjustment to establish a long run cointegrated equilibrium. An additional finding is that both the premium and net buy have significant impacts on international price transmission for over twenty percent samples. Empirical outcomes also provide the evidence that our model is quite robust.     

Does switching from NASDAQ to the NYSE affect investment–cash flow sensitivity?

We examine whether a firm's sensitivity of investments to cash flow changes when it switches from the NASDAQ to the NYSE over the period 1992–2002. Contrary views exist on the effect of listing switches on investment sensitivity to cash flow. Investment–cash flow sensitivity is a proxy for the degree of uncertainty of using internal funds to finance a firm's investments. We use a least square dummy variable model to analyze panel data before and after switching to determine the impact of switching. Based on pooled data, our evidence is consistent with the view that NASDAQ-to-NYSE switchers have significantly lower investment–cash flow sensitivity, which means that firms rely less heavily on internal financing after switching and find accessing external financing easier. Thus, firms may benefit from switching in terms of a lower cost of external capital due to such factors as increasing visibility, liquidity, and reputation.