J. of Multi. Fin. Manag. 14 (2004) 1–18 The ex-dividend day behavior of American depository receipts Larry R. Gorman a , Arvind Mahajan b , Robert A. Weigand c,∗ a Department of Finance, College of Business 03-420, California Polytechnic State University, San Luis Obispo, CA 93407, USA b Lamar Savings Professor, Departmentof Finance, Texas A&M University, College Station, TX 77843-4218, USA c College of Business and Administration, University of Colorado at Colorado Springs, 1420 Austin Bluffs Parkway, Colorado Springs, CO 80918, USA Accepted 9 July 2003 Abstract We compare the ex-dividend day stock returns and trading volume of foreign stocks that trade in US markets as American Depository Receipts (ADRs) with the ex-day returns and volume of a matched sample of US stocks. This experiment allows us to investigate whether differences in the way dividends are paid and/or foreign currency risk affect the stock returns and trading volume of ADRs on the ex-dividend day. If these factors inhibit dividend capture in ADRs, then ADRs should earn larger ex-day returns than US stocks, and their ex-day trading volume should be lower. We present evidence consistent with these hypotheses. The results of a cross-sectional regression analysis of ex-day returns and volume are not consistent with a foreign exchange risk premium suppressing dividend capture in ADRs, however, suggesting that differences in dividend payment policies account for the lower level of dividend capture in ADRs. © 2003 Elsevier B.V. All rights reserved. JEL classification: G15; G35; F31 Keywords: American depository receipts; Dividends; Ex-dividend day; Foreign exchange risk ∗ Corresponding author. Tel.: +719-262-3120; fax: +719-262-3494. E-mail address: rweigand@uccs.edu (R.A. Weigand). 1042-444X/$ – see front matter © 2003 Elsevier B.V. All rights reserved. doi:10.1016/S1042-444X(03)00035-5