Intensity of Narrated Global Orientation on the Liabilities of Newness and Foreignness in Capital Markets: An Application of Hierarchical Topic Modeling

Initial public offerings (IPOs) of early-stage companies in foreign markets may face two li abilities: the liabilities of newness and foreignness. The firms need to overcome the liabilities to achieve better performance at the IPOs. These liabilities can be strengthened or weakened by pre senting the purpose of the companies’ listings on a foreign market in the official IPO prospectus. This study divides narrated global orientation into technology-driven and market-driven and in vestigates their moderating roles in the effects of those liabilities on IPO performance. From 2008 to 2014, we used data of 172 foreign IPOs in the U.S. stock market. From their IPO prospectuses, the parts describing the business were extracted and analyzed using the hierarchical topic modeling (hLDA) technique. Through the analysis, we recognized global orientation driven either by technology or market. As a result of regression analyses, we find that the effects of li abilities of newness and foreignness are mitigated when the intensity of the market-driven global orientation is high in the prospectus. This study has an implication that when firms decide to list on a foreign stock market, they need to be deliberate on how much they present either type of global orientation.