ADR characteristics and corporate governance in the Greater China region

We examine the relationship between firm valuation and governance mechanisms, firm characteristics, and institutional factors of the American Depository Receipts (ADRs) domiciled in the Greater China region. We find that China ADRs have the highest market-to-book value ratio followed by Hong Kong and Taiwan ADRs. It appears that Chinese firms with the poorest external governance environment stand to benefit the most from cross listing under the ADR programs. Listing in the U.S. that requires more stringent regulations and disclosure rules may strengthen the firms’ governance practices and thereby enhance their firm value. Among the internal governance mechanisms, institutional ownership and insider ownership are important for firm value.