Liability of Foreignness in Global Stock Markets : Liquidity Dynamics of Foreign IPOs in the US

Using a unique dataset of foreign and domestic IPOs listings in the US from 1990 to 2012, we study how foreignness affects IPO liquidity. We find that foreign IPOs enjoy higher liquidity than IPOs in their home countries, but do not fully gain the same liquidity benefits as for IPOs of domestic US issuers. In contrast to prior evidence for mature cross-listed firms, we show that liquidity differentials between foreign and domestic IPOs in the US are determined by information asymmetry related to foreignness rather than to home-country institutional environment characteristics. Thus, our results extend prior findings to reveal salient differences in liquidity and liquidity determinants between IPOs offerings by foreign and domestic firms in the US