American Depositary Shares – Definition

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American Depositary Share – ADS

American Depositary Share (ADS) is a US dollar-denominated title released by the foreign company that regulates the US trustee (Trustee) to release it in the United States. The ADS issuance also necessitates the pledge of the foreign company’s shares.

A Little More on What is an American Depositary Share

ADS, American Depositary Shares, or American Depositary Receipts (ADRs), permit the foreign equity stock exchanges in the United States.  Most of the foreign company stocks are traded in this way on the US stock exchange. Depositary banks release American depositary receipts in the United States, and all ADRs represent one or more foreign stocks or some stocks. If you are an ADR holder, you possess the rights and credentials of the underlying foreign stock.

American depositary stocks are different from American depositary receipts since the face value of American depositary stocks is usually just a fraction of the face value of the mortgage stock, while American depositary receipts normally use the number of units (such as 10 shares) to hold the stock as a unit.

American Depositary Shares (ADS) was funded by the stock-issuing company that aimed to acquire US investors without being listed on the US market. American Depositary Receipt (ADR) hold the rights of foreign stocks available for the US citizens to buy. Brokerage firms and banks initiate ADR.

Depository Receipt

A depositary receipt (DR) is a negotiable financial instrument issued by a bank to represent a foreign company’s publicly traded securities. The depositary receipt trades on a local stock exchange. Participants in depositary receipts have the issuing companies and custodians in a state where the company is based, and depositary banks, securities underwriters, and investors across the border. From the investor’s point of view, the depositary receipt is a transferable stock certificate that depositary bank issues. It is a proof that certain amount of stock of the foreign company was deposited with the bank’s foreign custodian institution, and the holder of the certificate possesses the same rights as the original stockholder. Depositary receipts usually represent company stock, and sometimes bonds.

References for American Depository Shares

Academic Research for American Depository Shares

Issuer Choice After Morrison, Hemel, D. (2011). Yale J. on Reg., 28, 471.

Satyam fraud: A case study of India’s Enron, Brown, V. L., Daugherty, B. E., & Persellin, J. S. (2014). Issues in Accounting Education, 29(3), 419-442. This case brings students a good opportunity to evaluate and analyze the challenges involved in auditing of today’s global environment. Students evaluate the real-world billion dollar as well as the embezzlement and fraud at Satyam Corporation, a global India-based company, previously trading on the New York Stock Exchange. The case explains the auditor’s’ responsibilities regarding obtaining and assessing the audit evidence, especially, as it is related to confirming cash and receivables. It also describes the quality control responsibilities for the audit procedures carried out by foreign affiliates of a big international audit firm. The case shows the role of culture in carrying out an audit as per the auditing standards prescribed by the U.S. Public Company Accounting Oversight Board.

The best is yet to come: Globalization, America and the New York stock exchange, Grasso, R. A. (1997). Vital Speeches of the Day, 63(7), 215.

Longtop Financial Technologies Ltd. phony cash from IPO onward?, Grove, H., & Victoravich, L. (2014). Journal of Forensic & Investigative Accounting, 6(3), 171-188.

The Restoration of Latin America’s Access to Voluntary Capital Market Financing: Developments and Prospects, El-Erian, M. (1991).  After a long and almost 100% reliance on the debt restructurings and new money facilities, a lot of Latin American countries have, since the last two years, mobilized the voluntary financing from the international capital markets. Although the process is still comparatively confined in terms of volume and number of the borrowers, it has though attracted significant attention. The paper examines the nature, scale and terms of the market re-entry process and, based on the latest country experiences, evaluates the factors that have facilitated it.

Analysis of the Development of China Online Game Industry, Ren, Q., & Yang, X. (1997). Bournemouth University, 1-16. With the fast growth of Internet usage and the broadband usage, China’s online game industry has been termed as the fastest-growing industries in the world. China now stands at 2nd in the world for the number of internet users. The rising trend shows that the online game market would have huge potential. This paper presents the data regarding China’s online gaming industry’s faster growth, using the Porter’s diamond theory of national advantage to examine the national competitive advantages that China online game industry acquired. The primary analysis emphasizes on the successful application of development strategy of Shanda Interactive Entertainment Limited, the biggest online games operator in China and how the Chinese Government promotes the development of its national competitiveness in online game industry.

Multinational companies and international capital markets, Bay, W., & Bruns, H. G. (2003). P. Walton, A. Haller et B. Raffournier, 2e édition Thomson Learning, Londres, 385-404.

Price transmission dynamics between ADRs and their underlying foreign security: the case of Banco de Colombia SA-Bancolombia, BERGGRUN P, L. U. I. S. (2005). Estudios Gerenciales, 21(97), 13-29.

Towards an International Cost of Capital, Dullum, K. B., & Stonehill, A. (1983). Nationaløkonomisk Tidsskrift, 121. The paper provides a theoretical evaluation of the cost and availability of capital to businesses located in segmented capital markets, presents a case study of Novo Industri A/S (Novo), a Danish firm, which effectively internationalized its cost of capital irrespective of the  constraints imposed by an segmented and illiquid home capital market; and identifies the barriers to internationalization. It explains the theoretical ideas of market “efficiency,” “liquidity” and “segmentation”‘ and evaluate how these are applied to the Danish securities market. Then it examines how these ideas might affect a firm’s cost and availability of the capital. The Novo case is also studied. The findings reveal the barriers to internationalization.

eBay’s cross-border bid of Korean Gmarket, Cho, S. H., & Kim, H. E. (2014). Актуальні проблеми економіки, (1), 43-54. This paper explains the cross-border cash flow-based estimation approaches for the acquiring non-listed company and their application to the case of eBay’s acquisition of Gmarket, a popular Korean Internet shopping firm headquartered in Seoul, Korea. This case discusses the following two questions. First, why will the eBay, an international leader in e-commerce, having already acquired the Korean Auction in 2001, seeks to acquire Gmarket for over 1  bln USD in 2009? Secondly, will the eBay’s proposed offer price of $1.2 bln, or $24 per share be sensible?

Shareholder Lawsuits: Where Is the Line Between Legitimate and Frivolous?, Larcker, D., & Tayan, B. (2012). The public companies’ shareholders are not responsible for developing executive compensation packages. However, still a shareholder vote on the compensation is needed in two circumstances: when a firm wants to form an equity-based compensation plan, and yearly as part of the Dodd Frank requirement, the shareholders hold an advisory “say on pay.” In determining how to vote, the shareholders rely just on the data provided in the annual proxy.  Recently, the shareholder groups have sued businesses for insufficient disclosure. They allege that the businesses provide inadequate disclosure to decide how they should vote on such matters.

Indirect investors: a greater say in the company?, Nolan, R. C. (2003). Indirect investors: a greater say in the company?. Journal of Corporate Law Studies, 3(1), 73-121. This article examines the Company Law Review’s proposals to enfranchise the indirect investors in shares. It conducts a first detailed survey of recent UK practice in the area, and, in the light of the survey’s findings, infers that the CLR’s proposals will not help the law much beyond existing practice. There are,though, other ways where the CLR’s welcome policy goals might be attained. These are assessed and examined. Finally, it makes proposals  to reform the law regarding shareholder voting, both in view of companies and nominee shareholders.

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