What determines the survival of internet IPOs?

Abstract

This article examines whether the variables that are significant in noninternet initial public offering (IPOs) play a similar role for internet IPOs. To this end, we analyse the determinants of survival of internet firms that have gone public at the NASDAQ stock exchange from December 1996 through February 2001. Financial and nonfinancial data published in the IPO prospectuses are examined. For our analysis, we use the semiparametric Cox proportional hazard model and estimate the effect of these variables on the trading (survival) time using the parametric Log-logistic survival model. It appears that the average operating history of internet IPOs is remarkably small compared to noninternet IPOs, namely 2.4 and 10 years, respectively. Furthermore, we find that the average number of risk factors for internet IPOs is four times higher than the number reported for noninternet IPOs. The results of the parametric analysis correspond to the semiparametric results. Our findings hold under a number of different model specifications and robustness checks. The sensitivity analysis in the Log-logistic model reveals that the greatest positive effect on the survival time comes from investor demand followed by operational cash flow over liabilities. The expected survival time is shortened mostly by IPO market level, followed by valuation uncertainty.