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Foreign Firms Issuing Equity on US Exchanges: An Empirical Investigation of IPOs and SEOs

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  • Padma Kadiyala
  • Avanidhar Subrahmanyam

Abstract

We analyse a sample of foreign firms issuing equity in the USA to determine the factors that affect IPO and SEO pricing. The average SEO discount, defined as the percentage difference between the price in the local market on the offering date and the SEO offer price, is 2.07%, and is significantly lower for stocks that are ultimately listed on the NYSE/AMEX than for stocks that are listed on the Nasdaq. Foreign equity issues are underpriced; the traditional underpricing discount, which is defined as the percentage difference between the closing price on the first day of trading and the offer price, is 18.75% on average. Equity issuers from industry groups with the largest six–month pre–IPO return in the US market experience a higher level of underpricing. For the subsample of emerging market issues, we document that, in the after–market, the ADR price remains persistently above the dollar denominated price in the domestic market for up to 90 days following the date of the issue.

Suggested Citation

  • Padma Kadiyala & Avanidhar Subrahmanyam, 2002. "Foreign Firms Issuing Equity on US Exchanges: An Empirical Investigation of IPOs and SEOs," International Review of Finance, International Review of Finance Ltd., vol. 3(1), pages 27-51, March.
    • Handle: RePEc:bla:irvfin:v:3:y:2002:i:1:p:27-51
    DOI: 10.1111/1468-2443.00032
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    Cited by:

    1. Yang, Ann Shawing & Carandang, Craig Alan Uyan, 2017. "Exploring the location and price differentials of cross-listed firms for arbitrage opportunities," Finance Research Letters, Elsevier, vol. 21(C), pages 85-91.
    2. Bell, R. Greg & Moore, Curt B. & Filatotchev, Igor, 2012. "Strategic and institutional effects on foreign IPO performance: Examining the impact of country of origin, corporate governance, and host country effects," Journal of Business Venturing, Elsevier, vol. 27(2), pages 197-216.
    3. Hursti, Jani & Maula, Markku V.J., 2007. "Acquiring financial resources from foreign equity capital markets: An examination of factors influencing foreign initial public offerings," Journal of Business Venturing, Elsevier, vol. 22(6), pages 833-851, November.
    4. Jog, Vijay & Otchere, Isaac & Sun, Chengye, 2019. "Does the two-stage IPO process reduce underpricing and long run underperformance? Evidence from Chinese firms listed in the U.S," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 90-105.
    5. Jing Zhang & Huizhi Yu, 2017. "Venture Capitalists’ Experience and Foreign IPOs: Evidence from China," Entrepreneurship Theory and Practice, , vol. 41(5), pages 677-707, September.
    6. Curt B. Moore & R. Greg Bell & Igor Filatotchev, 2010. "Institutions and Foreign IPO Firms: The Effects of “Home†and “Host†Country Institutions on Performance," Entrepreneurship Theory and Practice, , vol. 34(3), pages 469-490, May.
    7. Tupper, Christina H. & Guldiken, Orhun & Benischke, Mirko, 2018. "Capital market liability of foreignness of IPO firms," Journal of World Business, Elsevier, vol. 53(4), pages 555-567.

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