The Impact of the Country of Origin on the Underpricing of ADR IPO in the U.S. Equity Markets

This study examines the impact of the country of origin on the underpricing of American Depositary Receipts (ADRs) Initial Public Offerings (IPOs) in the U.S. equity markets from 2003 to 2023. Analyzing 161 ADR IPOs from 28 countries, the research finds that ADRs from countries with higher country risk premiums are associated with lower underpricing. GDP correlation and Rule of Law difference have no significant impact on underpricing, whereas longer lock-up periods correlate with higher underpricing, signaling higher quality. Countries such as China, the UK, Ireland, Germany, Israel, and Mexico exhibit high underpricing, while Japan, South Korea, and Singapore show low or negative underpricing. The study concluded that investors are willing to pay more for better protection against financial risk but will not pay more for diversification potential.