Coming to America: Diversity in Cognitive Legitimacy Judgments of Chinese IPOs

Abstract

Exploring the effects of bounded cognition in real-life decision-making settings requires attention to both the information sources available to the evaluators and an assessment of the conditions under which they make their judgments. Using a sample Chinese IPOs making their debut on U.S. stock exchanges, our study evaluates the importance of director interlocks in raising equity resources abroad, and how institutional investors make different legitimacy judgments of director interlocks. In doing so, we examine how director interlocks in home and host countries affect potential investors’ judgments of the IPO’s legitimacy. Our results show that dedicated and transient investors value Chinese and U.S. director interlocks differently. However, both investor types place similar emphasis on dual director interlocks that link firms to other Chinese IPOs in the U.S.