Global Diversification and IPO Returns

A large number of newly listed firms have significant involvement in international business activity. In this paper, we examine the effect of international business activity on the pricing of initial public offerings (IPOs), post-IPO performance, and survival. In a large sample of U.S. IPOs over 1981 to 2012, we find that firms with exports and/or foreign sales prior to going public have significantly lower underpricing than matching firms without international business activity. Furthermore, firms with international business activity significantly outperform purely domestic IPO firms over three- and five-year periods after going public and have a significantly higher survival rate. Overall, we provide strong evidence that global diversification has an economically significant effect on the valuation and subsequent performance of firms going public