An ADR (American Depositary Receipt) represents the shares of a foreign corporation held by a local bank, in this case a bank in the United States, and entitles shareholders to all dividends and capital gains. Instead of buying shares of foreign companies in other markets, American investors can buy them in the United States in the form of an ADR. Likewise, investors from other countries, such as Latin Americans, buy shares of non-American companies on the New York Stock Exchange through ADR programs. The concept is expanded below.
American Depositary Receipts (ADRs) are financial assets issued by US banks and represent a certain number of shares of a foreign company, which are deposited in a bank in the company's home country. ADRs were first issued in 1927 to allow investors from the United States to invest in a British company called Selfrige. The technological advances of the time did not allow an investor to buy and sell shares with the current ease, nor to collect dividends if the company was outside the US, so JP Morgan offered to act as representative of all those US investors who want to invest in Selfrige, issuing Certificates in North American currency and trading them on the New York Stock Exchange.(Martín, p.25)
ADR, American Depositary Receipt, is a negotiable certificate denominated in United States dollars, which is listed on one or more stock markets and constitutes the ownership of a certain number of shares. The US bank is responsible for all share issuance and transfer services and is also responsible and must provide shareholders with all services related to the registration, control and payment of dividends in USD. They were created by the Morgan Bank (1927) in order to encourage the placement of foreign securities in the United States. (Linares, p.562)
Foreign companies list their shares on the United States stock markets, usually in the form of American Depositary Receipts, ADRs. Depositary Receipts, DRs, were created in 1927 by JP Morgan to help North American investors who wanted to acquire shares of non-American corporations but did not want to go to a foreign market. A Depositary Receipt is issued by a US depositary bank as evidence of ownership of shares in a non-US corporation. (He, p.9)
An ADR is a negotiable instrument issued by a US depositary bank, representing a percentage of participation in a specified number of shares that have been deposited with a custodian, typically in the issuer's home country. The ADR may represent one or more shares, or a fraction of a share, of a private foreign issuer, and is offered as a "sponsored" or "non-sponsored" ADR. (Evans, Lynn, Pinedo and Tenembaum, p.352)
In the following video tutorial, from InvertirOnLine, it is explained clearly and in greater depth what ADRs are and how they work. (2 video lessons, 12 minutes)
Bibliography
- Evans, NR; Lynn, DM; Pinedo AT; and Tenembaum, JR Capital Markets and Securities FAQs. Morrison & Foerster, 2013 He, Hui. Essays on ADR Pricing, ProQuest, 2009 Linares, Humberto. Venezuelan Bank 3rd Ed., 2013. Martín Mato, Miguel Ángel. Capital markets, Thomson Learning, 2007.
