Flowback

AAA

DEFINITION of 'Flowback'

When foreign investors perform a massive sell-off of a company's cross-listed shares back to the country of issuance as a result of an impending cross-border merger. In some situations, these cross-border mergers give foreign investors the perception that certain serious drawbacks are so apparent that they have no choice but to sell their shares.

Flowback can also refer to an investor's right to convert an American depositary receipt (ADR) into its representative stock.

INVESTOPEDIA EXPLAINS 'Flowback'

For example, country A's tech index fund only deals with tech stocks from country A. Country A's leading tech company, ABC, decides to merge with country B's leading company, DEF, and incorporates the new company, ABEF, in country B.

The net effect of this action would force the previously mentioned index fund to sell all of its shares in ABC, because the company will no longer fit into the fund's investment thesis. In such cases, companies should examine flowback that occurs as a result of corporate actions in order to prevent share prices from tumbling.

Flowback of ADRs occurs when arbitrageurs take advantage of domestic and foreign market mispricings.

RELATED TERMS
  1. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  2. Arbitrageur

    A type of investor who attempts to profit from price inefficiencies ...
  3. American Depositary Share - ADS

    A U.S. dollar-denominated equity share of a foreign-based company ...
  4. Merger

    The combining of two or more companies, generally by offering ...
  5. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
  6. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
RELATED FAQS
  1. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
  2. What types of companies benefit from reporting results utilizing constant currencies ...

    Any company that does a substantial amount of business in foreign countries, and is therefore subject to foreign currency ... Read Full Answer >>
  3. What are the differences between B-shares and H-shares traded on Chinese stock exchanges?

    Equity listings in China generally fall under three primary categories: A shares, B shares and H shares. B shares represent ... Read Full Answer >>
  4. How is a tender offer used by an individual, group or company seeking to purchase ...

    A tender offer is made directly to shareholders in a publicly traded company to gain enough shares to force a sale of the ... Read Full Answer >>
  5. How does a company record profits using the equity method?

    A company that invests in another company and has majority control of it would record profits using the equity method. This ... Read Full Answer >>
  6. What are the differences between H-shares and A-shares on Chinese and Hong Kong stock ...

    Publicly trade companies in China generally fall under three share categories: A shares, B shares and H-shares. A-shares ... Read Full Answer >>
Related Articles
  1. Economics

    American Depositary Receipt Basics

    Thanks to American depositary receipts, investors now have a world of investing opportunities to choose from.
  2. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  3. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  4. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  5. Mutual Funds & ETFs

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  6. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  7. Economics

    The Most Likely Outcome For Greece

    After more than five years of a Greek drama, most of us have become fatigued with hearing about Greece’s debt problems, the one issue that won’t go away.
  8. Investing Basics

    What is a Private Company?

    A private company is any corporation that does not have shares publicly traded in the equity markets.
  9. Investing

    How To Profit From M&A Announcements

    We look at four strategies that seek to profit from merger and acquisitions announcements.
  10. Fundamental Analysis

    Can Japan's Stewardship Code Turn Passive Funds Into Active Managers?

    Institutional investors in Japan have been criticized for being too cozy with corporates. Can a code force them to focus on the needs of beneficiaries?

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!