We explore the question of whether the level of institutional ownership in foreign shares is explained by the information cost argument vs. the 'prudent man' requirement. As an example of foreign shares, we look into ADRs traded in the NYSE, AMEX, and Nasdaq in 1995 and 1993. Our study reveals that institutional ownership in ADRs is extremely low (for example, around 1% in median for ADRs from developed countries), which is very surprising in the context of the information cost argument. This observation is consistent with the prediction from the 'prudent man' requirement. Looking for firm-level attributes that explain the magnitude of institutional ownership of ADRs, we find that beta and liquidity are associated positively with the level of institutional ownership of ADRs. The positive association of beta and the level of institutional ownership casts doubt on the textbook presumption that international investment is driven by diversification motive. Comparison with the level of institutional ownership in country funds suggests that liquidity alone cannot account for the low institutional ownership in ADRs.