The valuation of ADR IPOs

• Published in: Journal of international financial markets, institutions & money Vol. 53; pp. 215 - 226
• Main Authors: Huo, Weidong, Fu, Chengbo, Huang, Ying, Zheng, Steven Xiaofan
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.03.2018
• Subjects: ADR IPO; Equity markets; Valuation; Windows of opportunity theory; Equity markets; G15; Valuation; ADR IPO; G32; Windows of opportunity theory
• ISSN: 1042-4431; 1873-0612
• DOI: 10.1016/j.intfin.2017.09.024

•The valuation of ADR IPOs relative to U.S. domestic IPOs and U.S. seasoned firms is examined.•ADR IPOs are valued higher than U.S. seasoned.•ADR IPOs are issued to take advantage of overoptimistic in U.S. equity markets.•The valuation of ADR IPOs supports windows of opportunity theory. 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.