Performance differences between IPOs in new industries and IPOs in established industries

Abstract

PurposeThe purpose of this paper is to provide a unique approach to examining issues related to initial public offerings (IPOs).Design/methodology/approachThe price behavior of IPOs in new industries is analyzed relative to IPOs in established industries.FindingsThe results show that there are fundamental differences between IPOs of companies in new industries and those in established industries in that there is greater uncertainty regarding future earnings, less competition and fewer barriers to entry. The results indicate that IPOs in new industries outperform IPOs in established industries during holding periods of one to ten years. Furthermore, IPOs in new industries tend to merge less often, declare bankruptcy less often and are delisted less often than firms conducting an IPO in established industries.Originality/valueA longitudinal approach allows analysis of IPOs of firms relative to other IPOs within the same industry that occurred before or after. By performing such a longitudinal study, issues could be examined which would not have been possible to analyze using a cross section of IPOs from a single time period. The usefulness of this study is that it provides new information to the investor when selecting between IPOs in new or established industries, and also when selecting among IPOs of firms entering a new industry in the early, middle or latter stage of its market cycle.