Foreign Issuer Puzzle in Emerging Growth Company IPOs

48 Pages Posted: 14 Nov 2017 Last revised: 12 Jul 2019

See all articles by Rachita Gullapalli

Rachita Gullapalli

Securities and Exchange Commission (SEC)

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Date Written: May 1, 2019

Abstract

The prominence of foreign issuers in the US market has grown significantly over time. In this paper we examine the IPOs of foreign issuers around the 2012 JOBS Act, which provided emerging growth companies (EGCs) with disclosure and offering process accommodations. We find systematic differences in the effects of the EGC regime on foreign issuers, complementing existing evidence on domestic issuers. In particular, underpricing of foreign issuer IPOs decreases – rather than increases – under the EGC regime. We further find evidence that greater flexibility in pre-IPO access to potential investors, which is consistent with reduced valuation uncertainty, helps explain the lower underpricing of foreign EGC IPOs. We also find that the EGC status is associated with higher long-run returns for foreign issuers relative to other issuers. We conduct a number of robustness tests to show that our results are not explained by differences in issuer characteristics, likely confounding effects, or changes in other IPO costs. Our findings highlight the differential effects of regulatory shocks on foreign issuers accessing US markets.

Keywords: initial public offerings, emerging growth companies, information asymmetry, foreign issuers

JEL Classification: G30, G32, G38

Suggested Citation

Gullapalli, Rachita and Knyazeva, Anzhela, Foreign Issuer Puzzle in Emerging Growth Company IPOs (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3069374 or http://dx.doi.org/10.2139/ssrn.3069374

Rachita Gullapalli

Securities and Exchange Commission (SEC) ( email )

100 F Street, NW
Washington, DC 20549
United States

Anzhela Knyazeva (Contact Author)

Independent ( email )

No Address Available

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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