Country of Origin Stereotypes in Financial Market: An Empirical Test

Abstract

While much is known about Country-of-origin effects in product markets, less is known about the impact of a firm’s country of origin in the financial markets. Our studies questions if there are COO effects in financial markets. Specifically, we use the Stereotype Content Model to examine COO effects of foreign firms seeking to raise capital in the US equity markets. We examine the impact of warmth and competence on foreign firm values (measured by Tobin’s Q) as compared to local firm values on major equity exchanges in the United States. We hypothesize that favorable warmth and/or competence COO stereotypes will reduce foreign firm discounts on US stock markets. While we find evidence that the favorable warmth stereotype reduces the foreign firm discounts, the favorable competence stereotype was not associated with a lower foreign firm discount in our analysis. While these findings conflict with extant stereotypes in product markets studies, they align with other stereotype in intergroup process studies. We discuss the implications of our findings for future research and practices.