Foreign Issuer Puzzle in Emerging Growth Company IPOs
48 Pages Posted: 14 Nov 2017 Last revised: 12 Jul 2019
Date Written: May 1, 2019
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: Suggested Citation