Country risk and valuation of US‐listed foreign IPOs
Abstract
Purpose
Many foreign firms have made their initial public offering (IPO) debuts in the USA, without first being listed in their home market. The purpose of this paper is to investigate the association of a wide range of country risk measures with the valuation of foreign IPOs.
Design/methodology/approach
Based on the law and finance literature, it is hypothesized that IPO firms domiciled in countries with higher country risk are worth less, other things equal. This hypothesis is tested with a sample of international companies making their IPO debuts in the USA between 1986 and 2002.
Findings
It is found that several commonly used country‐level variables explain the observed IPO valuation differences across countries. In particular, the index of economic freedom, developed by the Heritage Foundation, and the Transparency International's corruption index have a significant impact on post‐offer IPO valuations. Specifically, IPO firms hailing from countries with more economic freedom and less corruption are associated with higher valuation in the aftermarket.
Originality/value
The paper investigates whether some commonly‐used country risk measures affect the valuation of newly US‐listed foreign firms.
Keywords
Citation
Wu, C. (2012), "Country risk and valuation of US‐listed foreign IPOs", Managerial Finance, Vol. 38 No. 10, pp. 939-957. https://doi.org/10.1108/03074351211255155
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited