ADR stands for American Depositary Receipt. ADR Shares are securities that represent non-US stocks that are deposited with US banks. The main objective of this type of shares is that US investors can buy shares of foreign companies from their market and paying in dollars.
Like normal stocks, ADR Shares are part of the capital of a company, in addition to having their corresponding rights (the distribution of dividends in dollars, pre-emptive subscription rights, voting rights, etc.).
On the other hand, we have ADSs (American Depositary Share, non-US shares), and they differ from ADRs in that they can represent packages of shares as divisions of these.
Advantages and disadvantages of ADRs
Commenting on the main advantages of ADR Shares we find:
- The company expands its market in which it is listed, being the most profitable price
- The company finds more powerful investors and with greater financing
- For the investor, this can mean savings in commissions, due to the difference between one country and another.
- For the US investor it may be more comfortable to operate in a single language
As for some of the drawbacks of ADR Shares we will highlight:
- The risk of exchange rate (of currency)
- The higher commissions that the investor must bear for operating in the United States due to the depository banks that apply an additional commission, although this does not always have to happen
- There may also be problems at the time of liquidity