Country Risk and the Valuation of U.S.-Listedn Foreign IPOs

This study investigates the association of country risk with IPO valuations. Based on the law and finance literature, I hypothesize that firms domiciled in countries with higher country risk are worth less, other things equal. I test this hypothesis with a sample of international companies making their IPO debuts in the United States. The results indicate that several commonly used country-level variables can explain the observed IPO valuation differences across countries. In particular, the index of economic freedom, developed by the Heritage Foundation, and the Transparency International's corruption index have significant impact on IPO valuations. Specifically, IPO firms domiciled in countries with more economic freedom and less corruption are associated with higher valuation