CORPORATE FINANCING OFFOREIGN‐BASED FIRMS: A TEST OF THE INFORMATION ASYMMETRY HYPOTHESIS

In the last decade, involvement of foreign‐based firms in the United States through setting up of joint ventures and subsidiary operations has increased tremendously. Many of these subsidiaries have securities traded in the local market but have the added flexibility of raising capital outside the United States through their foreign‐based parent organisations. This paper focuses on the capital acquisition process of these foreign‐based firms in the U.S. capital markets. The optimal selection of the format of the capital financing depends on the ultimate impact on shareholders' wealth. The decision is non‐trivial since there is substantial evidence to suggest that the choice and method of capital acquisition process convey new information to investors and therefore affect stock prices. As part of this process, it is important to understand the market reaction to announcements of public issues of various securities offerings.