The Effects of Home Country Institutions on the Aftermarket Stock Performance of Foreign IPOs in the US

• In Event: Accounting's Role in Asset Pricing

Abstract

Using a unique dataset, I investigate the effects of home country institutions on the long-run stock performance of foreign IPOs in the US, and whether performance is significantly different after the enactment of the Sarbanes-Oxley Act (SOX). My findings indicate that the long-run performance of IPOs from weaker home country legal institutions is higher than the long-run return of IPOs from stronger ones. I also find that foreign IPOs outperform matching domestic US IPOs. Furthermore, there is no evidence for a change in the long-run performance of the foreign IPO sample as a whole as a result of SOX. However, there is some evidence for a higher aftermarket stock performance of IPOs from stronger home institutions post-SOX relative to the pre-SOX period. The findings shed light on the differences within cross-listed firms and suggest that the cost of capital of foreign IPOs is influenced by home country institutions even when they leave their home capital markets by listing on US capital markets.

Author

• Jonathan Jona, The University of Melbourne