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(photo credit: AP)
Between 1985 and 2003, more than 120 Israeli companies went public in the US, which was more initial public offerings than all other foreign countries combined, excluding Canada.
Research studies over the decades have tried to discover the magic of the relative success of Israeli firms on Wall Street.
A study by Iftekhar Hasan and Maya Waisman, titled “Going Public: An Empirical Investigation of US Bound Israeli IPOs,” in the current edition of the Financial Markets, Institutions & Instruments
journal of the New York University Salomon Center, compared the returns of Israeli, other foreign and US company IPOs on Wall Street between 1985 and 2000.
Despite the assumption that lack of knowledge about non-US companies leads to a price significantly more discounted than necessary for initial public offerings on Wall Street, the results showed that the opposite was the case for Israeli companies.
“Holding all else equal, we find that Israeli IPOs are significantly less underpriced than their local and foreign counterparts,” the report said.
The researchers wrote of four significant characteristics of Israeli
firms that compensate for what they call “information asymmetry” and
country risk: “First, compared to their home-market capitalization size,
US-bound Israeli IPOs are significantly larger than the IPOs conducted
by their foreign counterparts. Second, Israeli issuers tend to perform
better than other foreign and US local IPOs during our entire period of
observation. Third, to a large extent, the Israeli firms in our sample
have products, licensing or franchising relationships or venture-capital
funds with strong roots in the US prior to the IPO. And fourth, the
relevant investor community of Israeli IPOs, at least at the early
stages, is small and overwhelmingly American.”
Hasan and Waisman said their findings were in line with other research
findings, which show that firms raising capital outside of their home
country are generally “a select group of high-quality firms in need of
external financing that cannot be sufficiently provided in their home