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The valuation of ADR IPOs

Author

Listed:
  • Huo, Weidong
  • Fu, Chengbo
  • Huang, Ying
  • Zheng, Steven Xiaofan

Abstract

We examine the valuation of ADR IPOs and find that they are valued similarly to U.S. domestic IPOs but significantly higher than U.S. seasoned firms. This higher valuation is not caused by differences in firm size, growth opportunity, profitability, listing exchange, diversification benefit, foreign exchange risk, investor protection, or market liquidity as suggested by previous studies. Moreover, they experience significant declines in earnings and their stocks underperform U.S. seasoned by more than 20% in the three years after IPO. We show that ADR IPOs are timed to take advantage of overoptimistic in U.S. equity markets, supporting windows of opportunity theory.

Suggested Citation

  • Huo, Weidong & Fu, Chengbo & Huang, Ying & Zheng, Steven Xiaofan, 2018. "The valuation of ADR IPOs," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 215-226.
    • Handle: RePEc:eee:intfin:v:53:y:2018:i:c:p:215-226
    DOI: 10.1016/j.intfin.2017.09.024
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    Cited by:

    1. Chowdhury, Reza H. & Fu, Chengbo & Huang, Qiping & Lin, Nanying, 2021. "CSR disclosure of foreign versus U.S. firms: Evidence from ADRs," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    2. Fu, Chengbo & Huang, Qiping & Tang, Hongfei, 2022. "Do ETFs affect ADRs and U.S. domestic stocks differently?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Valuation; ADR IPO; Equity markets; Windows of opportunity theory;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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