The pricing of U.S. IPOs by seasoned foreign firms

Timothy Burch, Larry Fauver

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We examine the pricing of U.S. initial public offerings (IPOs) by foreign firms that are already seasoned in their domestic countries. Presumably, these equity offers have less downside risk for investors than typical IPOs since domestic share prices can be used to help establish a preoffer value for the firm's equity. In spite of the presumed diminished downside risk, we find that offers by firms from countries that impose foreign ownership restrictions and capital controls are on average underpriced, experiencing an average first-day return in the United States of 12.7%. This result stems in part from the underwriter's failure to price the issue to fully reflect the postoffer premium that often arises for the U.S. shares. In contrast, offers by firms from countries without ownership restrictions have an average first-day return of 0.0%.

Original languageEnglish (US)
Pages (from-to)345-362
Number of pages18
JournalReview of Financial Economics
Volume12
Issue number4
DOIs
StatePublished - Jan 1 2003

Fingerprint

Initial public offerings
Pricing
Foreign firms
Downside risk
Equity
Ownership
Investors
Underwriters
Share prices
Foreign ownership
Premium
Capital controls

Keywords

  • Foreign equity offers
  • IPOs
  • Ownership restrictions

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

The pricing of U.S. IPOs by seasoned foreign firms. / Burch, Timothy; Fauver, Larry.

In: Review of Financial Economics, Vol. 12, No. 4, 01.01.2003, p. 345-362.

Research output: Contribution to journalArticle

Burch, Timothy ; Fauver, Larry. / The pricing of U.S. IPOs by seasoned foreign firms. In: Review of Financial Economics. 2003 ; Vol. 12, No. 4. pp. 345-362.
@article{2b0a0854f71c40dfb773aac65ff481e0,
title = "The pricing of U.S. IPOs by seasoned foreign firms",
abstract = "We examine the pricing of U.S. initial public offerings (IPOs) by foreign firms that are already seasoned in their domestic countries. Presumably, these equity offers have less downside risk for investors than typical IPOs since domestic share prices can be used to help establish a preoffer value for the firm's equity. In spite of the presumed diminished downside risk, we find that offers by firms from countries that impose foreign ownership restrictions and capital controls are on average underpriced, experiencing an average first-day return in the United States of 12.7{\%}. This result stems in part from the underwriter's failure to price the issue to fully reflect the postoffer premium that often arises for the U.S. shares. In contrast, offers by firms from countries without ownership restrictions have an average first-day return of 0.0{\%}.",
keywords = "Foreign equity offers, IPOs, Ownership restrictions",
author = "Timothy Burch and Larry Fauver",
year = "2003",
month = "1",
day = "1",
doi = "10.1016/S1058-3300(03)00037-5",
language = "English (US)",
volume = "12",
pages = "345--362",
journal = "Review of Financial Economics",
issn = "1058-3300",
publisher = "Elsevier Inc.",
number = "4",

}

TY - JOUR

T1 - The pricing of U.S. IPOs by seasoned foreign firms

AU - Burch, Timothy

AU - Fauver, Larry

PY - 2003/1/1

Y1 - 2003/1/1

N2 - We examine the pricing of U.S. initial public offerings (IPOs) by foreign firms that are already seasoned in their domestic countries. Presumably, these equity offers have less downside risk for investors than typical IPOs since domestic share prices can be used to help establish a preoffer value for the firm's equity. In spite of the presumed diminished downside risk, we find that offers by firms from countries that impose foreign ownership restrictions and capital controls are on average underpriced, experiencing an average first-day return in the United States of 12.7%. This result stems in part from the underwriter's failure to price the issue to fully reflect the postoffer premium that often arises for the U.S. shares. In contrast, offers by firms from countries without ownership restrictions have an average first-day return of 0.0%.

AB - We examine the pricing of U.S. initial public offerings (IPOs) by foreign firms that are already seasoned in their domestic countries. Presumably, these equity offers have less downside risk for investors than typical IPOs since domestic share prices can be used to help establish a preoffer value for the firm's equity. In spite of the presumed diminished downside risk, we find that offers by firms from countries that impose foreign ownership restrictions and capital controls are on average underpriced, experiencing an average first-day return in the United States of 12.7%. This result stems in part from the underwriter's failure to price the issue to fully reflect the postoffer premium that often arises for the U.S. shares. In contrast, offers by firms from countries without ownership restrictions have an average first-day return of 0.0%.

KW - Foreign equity offers

KW - IPOs

KW - Ownership restrictions

UR - http://www.scopus.com/inward/record.url?scp=0242636756&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0242636756&partnerID=8YFLogxK

U2 - 10.1016/S1058-3300(03)00037-5

DO - 10.1016/S1058-3300(03)00037-5

M3 - Article

AN - SCOPUS:0242636756

VL - 12

SP - 345

EP - 362

JO - Review of Financial Economics

JF - Review of Financial Economics

SN - 1058-3300

IS - 4

ER -