Institutional differences and Foreign IPOs: The Effects of the Sarbanes-Oxley Act on Underpricing of Foreign IPOs



Using a unique, hand-collected dataset of foreign Initial Public Offerings (IPOs) in the United States (US), this paper investigates the effects of the institutional environment at the country of origin on foreign IPO underpricing. It also studies whether underpricing has changed by the enactment of the Sarbanes-Oxley Act (SOX). Findings indicate a clear difference in underpricing of IPOs based on their home institutional environment. I find no evidence that that the passage of SOX has affected underpricing in the case of foreign firms as a whole or when home institutions are considered. Also, the results indicate that auditors’ prestige significantly reduces the magnitude of underpricing of foreign IPOs following SOX. Collectively, the findings of the paper contribute to the ongoing discussion on the effectiveness of SOX with regards to the reduction of cost of capital and the loss of competitiveness of US capital markets.
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Felix Lamp (
Stephan Kramer (