Home and host legitimacy signaling: Evidence from Chinese IPOs in the US

This study simultaneously examines the effect of home and host legitimacy in collective individuals, via boards of directors and at the organizational level, on IPO underpricing in the context of Chinese IPO firms raising capital in US markets. Drawing from organizational legitimacy and signaling theory, our central premise is that foreign IPOs have the incentive to obtain host legitimacy to overcome the liability of foreignness and require home legitimacy to deliver a signal of quality to potential investors. Results reveal that home and host legitimacy dampens IPO underpricing, which benefits the IPO firm. Finally, the presence of both home and host legitimacies further reduces IPO underpricing. • This study simultaneously examines the effect of home and host legitimacy. • Our work draws from both organizational legitimacy and signaling theory. • Results reveal that home and host legitimacy dampens IPO underpricing.