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Liquidity difference between non-U.S. and U.S. IPOs on the NYSE listings

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Abstract

We investigate liquidity and information asymmetry for a sample of non-U.S. stock listings and U.S. IPO listings on the NYSE. We find that non-U.S. stock listings tend to have wider spreads, larger price impact of trades, and higher probability of information-based trading than those of the U.S. IPOs. In addition, our results show that the differences in liquidity and information asymmetry are not transient; it has a long-term implication. Furthermore, liquidity and information asymmetry measures for non-U.S. stock listings are significantly related to the macro-institutional quality of their home countries such as political risk and absence of violence/terrorism, government effectiveness, voice and accountability, control of corruption, and rule of law. We find that non-U.S. stocks from countries with lower institutional quality metrics tend to have lower liquidity and higher information asymmetry. Therefore, improving a country’s institutional quality alleviates information problems and improves market liquidity for non-U.S. stocks listed in NYSE.

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Notes

  1. See World Federation of Exchanges at https://www.world-exchanges.org/.

  2. Refer to the site at https://www.ipohub.org/foreign-listings-on-u-s-exchanges/.

  3. Refer to the site at https://www.sec.gov/news/press-release/2020-319.

  4. One example of price stabilization is a green shoe option where it is a clause contained in the underwriting agreement of an initial public offering (IPO) that allows underwriters to buy up to certain percentage of additional company shares at the offering price. Nevertheless, more severe information asymmetry associated with foreign issuers can occur, and therefore, one can conjecture that U.S. investors discount foreign issuers with lower valuations and/or less liquidity in a relative term.

  5. Refer to the article at https://www.reuters.com/article/us-nasdaq-china-listings-exclusive/exclusive-nasdaq-to-tighten-listing-rules-restricting-chinese-ipos-sources-idUSKBN22V01Q.

  6. Level 1 ADRs have minimal SEC reporting requirements and trade over the counter and are the only level of ADR that can be unsponsored. Level 1 ADRs are not required to file quarterly or annual reports in compliance with U.S. generally accepted accounting principles (GAAP). A Level 2 ADR program allows a foreign issuer to list on a U.S. stock exchange, but not raise capital. Level 2 and Level 3 ADRs, meanwhile, require the issuer to register and file annual reports with the SEC.

  7. We also experiment with tighter matching criteria by eliminating stocks with matching score greater than 1.3 and listing time closely in the same calendar year, which results in losing approximately 263 firms from the sample.

  8. The EKOP model assumes that buy and sell orders from uninformed traders are equally likely.

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Authors and Affiliations

  1. Department of Accounting, Economics and Finance, Haile College of Business, Northern Kentucky University, Highland Heights, KY, 41099, USA

    Jang-Chul Kim

  2. CAU Business School, Chung-Ang University, Seoul, Korea

    Kaun Y. Lee

  3. Department of Finance and Economics, McCoy College of Business Administration, Texas State University, San Marcos, TX, 78666, USA

    Ha-Chin Yi

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  1. Jang-Chul Kim
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  2. Kaun Y. Lee
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Kim, JC., Lee, K.Y. & Yi, HC. Liquidity difference between non-U.S. and U.S. IPOs on the NYSE listings. Rev Quant Finan Acc 62, 365–387 (2024). https://doi.org/10.1007/s11156-023-01204-w

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