How Are Foreign Firms Valued in U.S. Markets? Evidence from Firm and Country Characteristics

Xiaoxiao Song


This paper investigates the determinants of foreign firms’ value in U.S. markets by examining both firm and country characteristics. Prior studies have agreed on foreign firms’ value premium when they cross-list stocks in U.S. exchanges. However, little research has pursued evidence regarding how these foreign firms are valued after the cross-listing. I attempt to answer this question by comparing the determinants of firm value for both foreign cross-listing firms and U.S. domestic firms. The results from regression models show that, although foreign firms share similar firm-level determinants with U.S. firms (firm size, firm leverage, and firm growth), they are on average undervalued by U.S. investors. Furthermore, the home countries’ characteristics, such as the rule of law, play an important role in foreign firms’ market value. In fact, the undervaluation is only observed in foreign firms from the weak rule of law countries, but not from strong rule of law countries. Overall, foreign firms’ market value is determined by both firm-level and country-level characteristics after they cross-list in the U.S. markets.

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