US-Bound IPOs: Issue Costs and Selective Entry

We examine 245 international firms making initial public offerings (IPOs) in the United States between 1991 and 1999, and compare their underwriting fees and indirect costs of underpricing to the IPOs of domestic US issuers. Our results indicate that foreign IPOs experience approximately the same costs on average as domestic IPOs. The risk of foreign IPOs arising from asymmetric information and high country risk is offset by characteristics that reduce their risk relative to domestic US IPOs. Foreign US IPO issuers are larger firms with tangible assets that originate from countries sharing a common border and language with the United States. These issues occur following periods of strong home market equity performance and stable currency conditions, which help to alleviate country risk.

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