Initial Public Offerings Activity Research Articles

Competitive Effects of IPOs: Evidence from Chinese Listing Suspensions

AbstractTheory suggests that initial public offerings (IPOs) can adversely impact listed firms, both directly by increasing intraindustry competition, and indirectly by completing related asset market spaces. However, the endogeneity of individual IPO activity hinders testing these channels. This paper examines listing suspensions in China in a panel specification that accounts for macro‐economic and financial conditions, isolating the firm‐level IPO impact. We identify the competitive impact of listing suspensions through the value share of postponed firms in the IPO queue in their industry, and asset‐space competition by firms' historical covariance with a synthetic portfolio of listed firms with the IPO queue industry mix at the time of suspension. Our results support the predicted IPO effects through both channels. We also document heterogeneity in IPO effects. Stronger firms, measured through a variety of proxies, benefit less from the suspension news. These results are robust to a battery of sensitivity tests.

Will Listing Rule Reform Deliver Strong Public Markets for the UK?

There is a general consensus that the UK needs strong public equity markets. To help to ensure Britain is well‐positioned on this front, the Financial Conduct Authority reformed the London Stock Exchange's listing regime in 2021 to foster initial public offerings (IPOs). This article outlines and evaluates these IPO‐related reforms, assessing their potential to resuscitate the UK's public equity markets. The article puts the IPO‐related reforms into context by considering whether the fostering of strong equity markets is a sensible policy goal and by assessing what laws governing publicly traded companies can contribute to this endeavour. The article acknowledges that the specific IPO reforms may increase IPO activity but concludes that concerns about strong public markets will continue to exist. This is because the reforms do not address stock market exits or the ‘over’‐regulation of public companies which discourages reliance on equity markets.

The competitive effects of IPOs on industry rivals

AbstractI study the impact of initial public offerings (IPOs) on industry rival performance. Instrumenting for IPO completion with post‐IPO filing NASDAQ returns, I find no impact of IPOs on average rival sales growth, return on sales (ROS), or Tobin’s q after 3 years. However, post‐IPO rival performance varies with rival financial constraints. Relative to peers, rivals with low cash or high leverage exhibit lower sales growth, ROS, and q values, accompanied by lower capital expenditures and employment growth. I provide causal evidence of the competitive impact of IPOs and highlight the competitive cost of financial constraints following industry IPO activity.

Competitive Effects of IPOS: Evidence from Chinese Listing Suspensions

Theory suggests that initial public offerings (IPOs) can adversely impact listed firms, both directly by increasing intra-industry competition, and indirectly by completing related asset market spaces. However, the endogeneity of individual IPO activity hinders testing these channels. This paper examines listing suspensions in China in a panel specification that accounts for macroeconomic and financial conditions, isolating the firm-level IPO impact. We measure the competitive impact of listing suspensions through the value share of postponed firms in the IPO queue in their industry, and asset-space competition by firms’ historical covariance with a synthetic portfolio of listed firms with the IPO queue industry mix at the time of suspension. Our results support the predicted IPO effects through both channels. We also document heterogeneity in IPO effects. Stronger firms measured through a variety of proxies–benefit less from the suspension news. These results are robust to a battery of sensitivity tests.

Are Distances Barriers to Sustainability for Venture Capital Syndication?

This study aimed to explore how both geographic and industry distances, as potential barriers, affect the sustainability for venture capital (VC) syndication. Specifically, we examined the influences of initial public offering (IPO) activity as a market environment factor and foreign VC as a firm character on VC syndication in the tourism and hospitality sectors, together with the consideration of moderating effects of geographic and industry distances. Using a purposefully developed dataset of VC deals made in China, involving 645 VC firms and 592 VC-backed venture companies from 1991 to 2017, the empirical analysis indicated that both IPO activity and foreign VC were positively related to VC syndication. Geographic distance was found to negatively moderate the relationship between IPO activity and VC syndication; on the contrary, industry distance was found to positively moderate the relationship between foreign VC and VC syndication. These findings revealed that distances are not necessarily barriers to sustainability for VC syndication. This study provided an integrated view on the factors and barriers influencing the sustainability of VC syndication in tourism and hospitality sectors. It advances the knowledge of VC syndication in tourism investment and sheds light on sustainable entrepreneurship in tourism and hospitality.

Macroeconomic uncertainty, the option to wait and IPO issue cycles

This paper uses the macroeconomic uncertainty measure proposed by Jurado, Ludvigson, and Ng (2015) to explain the U.S. Initial Public Offering (IPO) issue cycles. Controlling for a large set of variables, time series estimations reveal a strong and robust negative impact of macroeconomic uncertainty on the IPO activity. An increase in macroeconomic uncertainty by one standard deviation lowers the number of monthly IPOs by roughly four in the long-run. Both the reduction of the number of IPO filings and the rise of withdrawn IPOs contribute to the lower number of IPOs in response to an uncertainty shock

Influence of national culture on IPO activity

We study the impact of national culture on initial public offerings (IPOs) - an important entrepreneurial activity through examining and providing empirical evidence of the proclivity for entrepreneurial firms situated across cultural contexts to seek legitimacy through floating IPOs. Informal institutions like culturally embedded societal norms of entrepreneurial behaviors and expectations for retained earnings as well as societal preferences for discretionary free cash flows are presented as the legitimizing mechanisms for such actions. We examined 7654 IPOs that occurred between 2003 and 2012 (312 country-year observations) from 47 countries. The results showed that countries with high power distance, high collectivism, and long-term orientation were positively associated with higher levels of IPO activity. In addition, the IPO activity levels were found to be significantly lower when the aggregated Euclidean distance differences between individual country culture profiles (where all the six dimensions of Hofstede's national culture taxonomy were considered together) and the ideal country cultural profile were greater.

The Rise and Fall of the German IPO Market, 1870-1938

Abstract This study of over 1,000 initial public offerings (IPOs) on the Berlin stock exchange from German unification to the eve of World War II draws attention to the importance of regulation and deepens our understanding of German stock market development. An increasingly exacting regulatory environment from the early 1880s to 1914 made a vital contribution to the higher likelihood of firms going public surviving. In the inhospitable regulatory setting of the 1930s, IPO activity drew to a halt and the development in the German stock market over the preceding decades reversed. As a complement to our analysis of the impact of regulation, we document the increased involvement of leading universal banks (D-banks) in the IPO market over the whole period.

IPO activity and market volatility

PurposeThe purpose of this paper is to hypothesize two channels in which market volatility affects initial public offering (IPO) activity.Design/methodology/approachFirst, CEOs time the market for IPOs and volatility makes this decision process harder. Second, risk-averse IPO investors become more reluctant toward IPOs during periods of higher volatility for their after-IPO returns.FindingsThe authors provide evidence that higher market volatility leads to lower IPO activity, supporting these hypotheses. More importantly, the authors show that it is not the realized volatility, but rather the implied (expected) volatility, that causes lower IPO activity.Research limitations/implicationsWhile there may be many companies that are ready to have IPOs, they may be simply waiting for a more opportune time which may not necessarily be a period of high prices but of low volatility.Practical implicationsThe public policy prescription is clear: if IPOs are to be encouraged, then regulatory policies should be constructed with the aim of reducing volatility.Originality/valueThis study is the first (to the authors’ knowledge) to argue that it is not the realized volatility which most affects the IPO decisions of executives, entrepreneurs and investors.

Does Size Matter for IPO Survival? Empirical Evidence from India

This article examines the effect of size of new issues on their survival profile in the aftermarket. The relationship between the probability of delisting and the time duration of initial public offerings (IPOs) on Bombay Stock Exchange (BSE) is tested using logistic regression and parametric survival analysis models. The models take a range of information concerning offering, market and corporate specific characteristics as well to explore the outcome of IPOs on the trading exchange. The analysis of Kaplan–Meier curves provides insight about how size matters in determining the survival and hazard trend of IPO in the aftermarket. Overall, the study reveals that issues with large size exhibits more market confidence as well as ability to withstand the rough market situations in the aftermarket, and hence, they survive longer in the market. The analysis of other variables shows a positive influence of age, lead manager’s reputation and IPO demand, whereas negative influence of risk, list delay, underpricing, market level and IPO activity on the survival probability as well as duration of IPOs in the aftermarket. Further, the survival prospects are analysed across several industrial sectors as well. The present study provides useful insight to several parties associated with IPOs, such as investors, issuers, creditors and regulators, who can utilize this information for taking rational decisions.

Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections

We analyze initial public offering (IPO) activity under political uncertainty surrounding gubernatorial elections in the United States. There are fewer IPOs originating from a state when it is scheduled to have an election. To establish identification, we develop a neighboring-states method that uses bordering states without elections as a control group. The dampening effect of elections on IPO activity is stronger for firms with more concentrated businesses in their home states, firms that are more dependent on government contracts (particularly state contracts), and harder-to-value firms. This dampening effect is related to lower IPO offer prices (hence, higher costs of capital) during election years.

Going Entrepreneurial? IPOs and New Firm Creation

Using matched employee-employer US Census data, we examine the effect of a successful initial public offering (IPO) on employee departures to startups. Accounting for the endogeneity of a firm’s choice to go public, we find strong evidence that going public induces employees to leave for start-ups. Moreover, we document that the increase in turnover following an IPO is driven by employees departing to start-ups; we find no change in the rate of employee departures for established firms. We present evidence that, following an IPO, many employees who received stock grants experience a positive shock to their wealth which allows them to better tolerate the risks associated with joining a startup or to obtain funding. Our results suggest that the recent declines in IPO activity and new firm creation in the US may be causally linked. The recent decline in IPOs means fewer workers may move to startups, decreasing overall new firm creation in the economy.

Going Entrepreneurial? IPOs and New Firm Creation

Using matched employee-employer US Census data, we examine the effect of a successful initial public offering (IPO) on employee departures to startups. Accounting for the endogeneity of a firm’s choice to go public, we find strong evidence that going public induces employees to leave for start-ups. Moreover, we document that the increase in turnover following an IPO is driven by employees departing to start-ups; we find no change in the rate of employee departures for established firms. We present evidence that, following an IPO, many employees who received stock grants experience a positive shock to their wealth which allows them to better tolerate the risks associated with joining a startup or to obtain funding. Our results suggest that the recent declines in IPO activity and new firm creation in the US may be causally linked. The recent decline in IPOs means fewer workers may move to startups, decreasing overall new firm creation in the economy.

National Culture and Entrepreneurship (IPO Activity): An Empirical Analysis

We study the impact of national culture on initial public offerings (IPOs) - an important entrepreneurial action by theorizing about and providing empirical evidence for the societal proclivity to ...

The Aftermarket Performance of Initial Public Offerings in Pakistan

This paper estimates the aftermarket performance of initial public offerings (IPOs) listed on the Karachi Stock Exchange. The evidence confirms that IPOs generate statistically significant abnormal returns in the short run, which indicates that underwriters initially underprice IPOs when analyzed using a short time horizon. However, when using longer time horizons to estimate abnormal performance, the results indicate that IPOs underperform in the long-run. There is an apparent dislocation between the initial valuation set by underwriters and the premium paid by the market for these new issues. The market sentiment that causes this temporary disequilibrium eventually fades and the market reprices the newly issued shares. We conduct an extreme bounds analysis to test the sensitivity and robustness of 16 explanatory variables in determining the long-term performance of unseasoned newly issued shares. The results indicate that the long-term investment ratio, industry affiliation, market-adjusted abnormal returns, financial leverage, return on assets, IPO activity period, the aftermarket risk level of unseasoned issues, and the post-issue promoter’s holdings variables significantly affect IPOs’ aftermarket performance. Theoretically, the overreaction hypothesis, ex-ante uncertainty hypothesis and window-of-opportunity hypothesis best explain IPOs’ aftermarket performance in this study.

External Determinants of Going Public in the Czech Republic and in Poland

This study deals with Initial Public Offering (IPO) developments in the Czech Republic and Poland over the period 2000 – 2012 and aims to indicate the influence of external going public determinants, in particular the capital market size- and liquidity- indicators, on IPO numbers and values. Our sample includes enterprises that conducted an IPO on the main markets of the Prague and Warsaw Stock Exchanges. The following steps were undertaken to analyse the quantitative data. Firstly, we performed a quantitative analysis of the Czech and Polish capital market in order to draw attention to certain specific issues existing on these markets between 2000 and 2012. Next, we compared internal IPO characteristics on the particular capital markets with the empirical evidence on IPOs in the Central and Eastern Europe- and EU-wide capital markets. Our results indicate the favourable development of fundamental capital market indicators on the Warsaw Stock Exchange. This could be seen as a signal of increasing market attractiveness for both investors and potential issuers (IPO candidates) and thereby accelerate IPO activity. On the other hand, the size and liquidity of the Czech capital market still represents an investment barrier.

Going Entrepreneurial? IPOs and New Firm Creation

Using matched employee-employer data from the US Census, we examine the impact of a successful initial public offering (IPO) on a firm's existing employees and their future career choices. Using an instrumental variables strategy, we find strong evidence that going public induces employees to depart for start-ups. Moreover, this result is specific to start-ups. We find no change in the rate of employee departures to established firms. We suggest and find evidence consistent with two non-mutually exclusive mechanisms which can explain this pattern. First, following an IPO, many employees who received large stock grants in the past are able to cash out. This shock to employee wealth may allow employees to better tolerate the risks associated with joining a start-up. Alternatively, employees may leave following an undesirable cultural change following the IPO. Our results suggest that the recent secular decline in IPO activity and new firm creation in the U.S. may be causally linked. The recent decline in IPOs means fewer workers move to startups, decreasing overall new firm creation in the economy.

Firm-specific risk and IPO market cycles

This article characterizes the role of risk in the initial public offering (IPO) cycle. While most of the previous literature uses the volatility of IPO initial returns to measure risk, we focus on different risk measures, namely firm-level systematic and idiosyncratic volatilities and the market-wide implied volatility index (VIX), to assess their role in the IPO cycle. Our results shed new light on (1) which risk measure is important in the determination of IPO cycles, (2) the temporal pattern of each risk component across issuing firms and (3) the relationship between market-wide uncertainty and IPO risk. Our findings reveal a lead-lag relationship between IPO waves, VIX and the IPO systematic risk measure. We also highlight the fact that market-level uncertainty predicts IPO activity and the level of idiosyncratic risk of the next-period-issuing firms. Issuing firms’ systematic risk can only be predicted by the systematic risk of firms now proceeding to their offering. The main implication resulting from our study is that one can better anticipate ‘hot-issue’ markets, as well as the specific risk components of future new issues. This will help improve upon the regulatory environment, IPO investment decisions and IPO timing given market receptivity.

The JOBS Act and IPO volume: Evidence that disclosure costs affect the IPO decision

In April 2012, the Jumpstart Our Business Startups Act (JOBS Act) was enacted to help revitalize the initial public offering (IPO) market, especially for small firms. During the year ending March 2014, IPO volume and the proportion of small firm issuers was the largest since 2000. Controlling for market conditions, we estimate that the JOBS Act has led to 21 additional IPOs annually, a 25% increase over pre-JOBS levels. Firms with high proprietary disclosure costs, such as biotechnology and pharmaceutical firms, increase IPO activity the most. These firms are also more likely to take advantage of the act׳s de-risking provisions, allowing firms to file the IPO confidentially while testing-the-waters.

Where Have All the IPOs Gone?

AbstractDuring 1980–2000, an average of 310 companies per year went public in the United States. Since 2000, the average has been only 99 initial public offerings (IPOs) per year, with the drop especially precipitous among small firms. Many have blamed the Sarbanes-Oxley Act of 2002 and the 2003 Global Settlement’s effects on analyst coverage for the decline in IPO activity. We find very little support for the conventional wisdom, and we offer an alternative explanation. Our economies of scope hypothesis posits that the advantages of selling out to a larger organization, which can speed a product to market and realize economies of scope, have increased relative to the benefits of operating as an independent firm.