on the extent of the internationalization of stock market activities. Therefore, we need to combine a number of sources.<sup>11</sup> On domestic activity, the data on market capitalization and value traded on the major local stock exchanges come from the Standard & Poor’s Emerging Markets Database and Global Stock Markets Factbook and cover the period 1975-2004 for 117 countries. The amount of equity capital raised by domestic firms in the local stock market comes from the World Federation of Exchanges and covers the period 1982-2004 for 46 countries.

On international activity, we use data from Claessens, Klingebiel, and Schmukler (2006), who collect firm-level information from several sources and aggregate it to obtain country-level variables. Here, we only present a brief description of these data. In terms of trading in international markets, the data come from the Bank of New York and cover trading in ADRs for the period 1989-2000. Capital raised abroad refers to the sum of the amount of new equity financing which is obtained by using a non-domestic instrument (such as a foreign listing or an ADR) and any new equity issue abroad. The data come from two different sources. One is the Bank of New York and covers capital raised through ADRs from 1980 to 2000. The other dataset is compiled by Euromoney and covers all capital raising operations in international equity markets by firms for the period 1983 to 2001. Data from the Bank of New York, Euromoney, the London Stock Exchange (LSE), NASDAQ, and the New York Stock Exchange (NYSE) are also used to identify the “international” firms in each country. International firms are those that are listed in international markets, directly or via DRs, or have raised capital in international equity markets. This classification is used to determine the market capitalization of all international firms in each country, which we use as one measure of the level of internationalization.<sup>12,13</sup> We use nine variables for our analysis, three for the development of local stock markets, three for the internationalization of stock exchange activities, and three for the relative degree of internationalization. The first three are: market capitalization over gross domestic product (GDP), value traded domestically over GDP, and capital raised

> 11 The list of countries and data sources for both the dependent and independent variables used in our regressions are detailed in Appendix Tables 1 and 2.

> 12 This measure does not indicate whether the shares of these firms are actively traded in international markets. For some cross-listed stocks, trading is largely in the home market rather than abroad. Also, some stocks might have little free float available for (foreign) investors. Both facts may lead to an overestimation of the degree of internationalization when using this variable. The other measures of level of internationalization, trading and capital raised abroad, do not suffer from these potential biases, since they quantify the actual activity that takes place in international markets. The results using the market capitalization of international firms are similar to those using the variables that capture actual activity abroad, and thus do not alter our conclusions.

> 13 For all the internationalization variables (market capitalization of international firms, value traded abroad, and capital raised abroad), observations are assigned a zero when no activity in international equity markets is identified.

5