Question

Alibaba Group Initial Public Offering: A Case Study of
Financial Reporting Issues
Qing L. Burke
Tim V. Eaton
Miami University

Q2. Non-U.S. companies, such as Alibaba Group, generally use American depository receipts to establish a trading presence
on U.S. stock exchanges.
a. The terms ‘‘American depository receipt (ADR)’’ and ‘‘American depository share (ADS)’’ are often used
interchangeably. What is an ADR and what is an ADS?
b. Explain why U.S. stock exchanges have attracted non-U.S. companies’ share listings. Provide at least two reasons.

Answer 1

Q2.

a.

American depository receipt (ADR) - As we know, foreign shares can not be listen on American stock exchanges. For the investors willing to invest in foreign companies, ADRs are made available by US banks.

ADRs are basically the certificates issued by these banks to be traded on US exchanges. These certificates represent shares of the same company being traded on foreign stock exchanges.

American depository share (ADS) - ADS is the actual share of the abovementioned foreign company which is trading in a exchange out of U.S.. The same is represented by ADR.

b.

The first reson is that the investors within U.S. wish to invest in high potential companies outside.

Second reason is that the companies do not get enough capital in home country.

Third reason is that the companies having business with global presence (Alibaba) wish to list the parent companies in U.S. due to it's favourable economic condition.