post-IPO Survival Research Articles

Does Time Frame of IPO Proceeds Predict Survival of Firms? Evidence from the Malaysian Market

Initial public offering (IPO) information disclosures such as the IPO proceeds’ strategic uses and the time frame have the potential to signal the listing firms’ post-IPO survival. We investigate the impact of IPO proceeds on 423 firms’ ability to maintain survival in business in Malaysia from 2000 to 2014. With a median survival span of approximately 104 months, our examination of survival data reveals that more than 40% of the firms in our sample had trouble surviving after their seventh year of listing. Our findings indicate that the share of IPO proceeds and the firms’ time horizon may be used to forecast whether or not they will survive, with meeting financial obligations serving as the primary motivating factor. A major fraction of IPO proceeds used for growth motives and financial obligations lead to shorter survival, while a longer time frame to meet the obligations leads to longer post-IPO survival. Our findings offer empirical support for regulators to safeguard investors’ interests and enhance firms’ survival in an environment with developing markets; information disclosure requirements include both the use of IPO proceeds and the time frame for its utilization.

Sustainable IPO Proceeds' Disclosure and Survival of Companies

We examine the sustainable disclosure of IPO proceeds on 423 companies’ survival in the Malaysian market from 2000 to 2014. Using survival analysis, we find that the companies’ survival can be predicted by the proportion of IPO proceeds and their time frame, with debt repayment being the critical driver of companies’ survival. We provide empirical support for securities regulators to include strategic use and timeframe of utilization of IPO proceeds in their information disclosure requirements to protect investors’ interests and improve companies’ post-IPO survival. Keywords: Sustainable IPO Disclosure; IPO Proceeds; Survival Analysis; Malaysia eISSN: 2398-4287 © 2022. The Authors. Published for AMER ABRA cE-Bs by e-International Publishing House, Ltd., UK. This is an open-access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer–review under the responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians/Africans/Arabians), and cE-Bs (Centre for Environment-Behaviour Studies), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia.

Intended Use of IPO Proceeds and Survival of Listed Companies in Malaysia

In the context of Malaysian companies’ survival, the potential role of intended use of proceeds as an influential factor remains unfamiliar. This study examines the link between the intended use of IPO proceeds and the survival of 423 Malaysian listed companies over the period of 2000–2014. This study distinguishes the use of IPO proceeds into three segregations: growth opportunities, debt repayment, and working capital. Employing the Accelerated Failure Time (AFT) survival model, the overall evidence shows a statistically significant effect of the intended use of IPO proceeds for growth opportunities and debt repayment on companies’ post-IPO survival. Furthermore, company survival was found to be consistently improved when they allocated less than 50% of their IPO proceeds, regardless of the purposes (growth, repay debt or general). These results highlight the importance of the intended use of IPO proceeds on the survival of newly listed companies, and provide insights for policymakers on the management of IPO proceeds for long-term survival.

The impact of the quality of VC financing and monitoring on the survival of IPO firms

PurposeThe purpose of this paper is to analyze the impact of venture capital (VC) involvement on the survival rate of French initial public offerings (IPOs) during the period 1996-2006. The paper examines the link between the survival rates of IPO companies, and several proxies for the quality of venture capitalist financing and monitoring.Design/methodology/approachTo analyze the impact of the involvement of VC on both long and short run post-IPO survival, two methods are used: survival analysis (the Cox proportional hazard), and a logit model.FindingsThis paper shows that the quality of venture capitalist monitoring, measured by the duration of their investment before the IPO, is positively correlated with company survival rates. However, the author does not find the expected result when the author considers the experience of venture capitalists measured by their age.Research limitations/implicationsThe findings are limited to a sample of VC-backed companies that went public.Practical implicationsThe findings have implications for entrepreneurs. When analyzing the advantages and disadvantages linked to the presence of VC firms in the capital of their companies, entrepreneurs should consider that certain types of venture capitalists might be more or less able to be involved in the monitoring and value adding process.Originality/valueTo date, there is no comprehensive study on the French IPO market analyzing both long and short run post-IPO survival of VC-backed companies. This paper fills this gap.

A complicated relationship: Family involvement in the top management team and post-IPO survival

This exploratory study aims to analyse how and whether family involvement in the top management team of listed family firms affects post-IPO survival on capital markets. We tested our hypotheses on a data set of listed family firms over the period 2000–2011 using survival analysis. Our findings suggest that a higher number of family members in the top management team reduces the likelihood of post-IPO survival, but the relationship is affected by a family member as CEO. The number of generations is also negatively correlated with survival.

Are private equity backed initial public offerings any different? Timing, information asymmetry and post-IPO survival

The IPO market provides an interesting setting for examining the behavior of private equity (PE) sponsors due to the higher information asymmetries it involves compared to other exit strategies. Contrary to the hypothesis that PE sponsors are more professional than other insiders in using the IPO market to expropriate investors, I do not find significant differences between PE-backed IPOs and comparable IPOs of stand-alone companies. PE sponsors do not target their IPOs in “hot” periods any more than would managers of stand-alone companies, nor are they more prone to rush their companies into premature IPOs. They also do not inflate valuations and are not more likely to seek to sell firms with poor prospects (“unload lemons”) onto the market. Studying the post-IPO period, I find that IPOs that take place in hot periods are significantly more likely to delist due to default, but this result is not any stronger for PE-backed IPOs. Throughout paper, I make a distinction between buyout-backed and venture-backed IPOs, uncovering some interesting differences but also similarities of the two. The paper provides evidence to contradict media criticism of PE sponsors. It can also have important policy implications regarding the PE regulatory framework. Finally, this work comes as a timely contribution given the increasing importance of PE in the IPO market.

SPACs: post-merger survival

PurposeThe purpose of this paper is to study how institutional characteristics of specified purpose acquisition companies (SPACs) are related to their post-merger survival. SPACs are unique financial firms that conduct the initial public offering (IPO) with the sole purpose of using the proceeds to acquire another private company. The paper finds that institutional characteristics of SPACs are important in determining post-merger outcomes of new company, specifically when it comes to their survival/failure, i.e., increases in pre-merger commitment by SPAC stakeholders and initial positive market performance increase post-merger survival likelihood; on the contrary, mergers with higher transaction costs and focused on foreign companies exhibit increased likelihood of failure.Design/methodology/approachUsing unique sample of companies conducting an IPO, namely, SPACs, with the sole purpose to execute an acquisition in the future date within limited time, this paper presents additional evidence on the survival and acquisition frequency of IPOs, and determinants of these choices.FindingsObserving unique set of specified purpose companies, this paper documents that SPACs’ failure rate is at the level of 58.09 percent, higher than any previously reported failure rate in the post-IPO survival literature and comparable only to failure rates found by Hensler et al. (1997) at 55.10 percent for general companies. In addition, the paper documents similar findings to Bhabra and Pettway (2003) that prospectus and market characteristics of original companies have predictive power with respect to survival.Originality/valueThis study extends the literature on post-IPO survival in following ways. First, the paper documents survival rates for unique set of companies organized with the sole purpose to acquire another company. Second, the paper presents evidence on how institutional characteristics of SPAC determine their post-merged outcomes, specifically when it comes to their failures. Finally, paper contributes to the scant literature on SPACs providing new evidence on their post-merger outcomes and performance.

Family managers in newly listed companies: an analysis of IPO survival

The scope of this empirical study is to analyse how and if family involvement in TMT of listed family firms affects post-IPO survival on capital markets. We test our hypothesis on a data set of Italian listed family firms over the period 2000-2011 by employing survival analysis. Our findings suggest that a higher presence of family members in TMT reduces the likelihood of post-IPO survival, but such relationship is contingent upon the presence of family CEO. Likewise, the number of generations is negatively correlated to survival.

Are Private Equity Backed Initial Public Offerings Any Different? Timing, Information Asymmetry and Post-IPO Survival

The IPO market provides an interesting setting for examining the behavior of private equity (PE) sponsors due to the higher information asymmetries it involves compared to other exit strategies. Contrary to the hypothesis that PE sponsors are more professional than other insiders in using the IPO market to expropriate investors, I do not find significant differences between PE-backed IPOs and comparable IPOs of stand-alone companies. PE sponsors do not target their IPOs in “hot” periods any more than would managers of stand-alone companies, nor are they more prone to rush their companies into premature IPOs. They also do not inflate valuations and are not more likely to seek to sell firms with poor prospects (“unload lemons”) onto the market. Studying the post-IPO period, I find that IPOs that take place in hot periods are significantly more likely to delist due to default, but this result is not any stronger for PE-backed IPOs. Throughout paper, I make a distinction between buyout-backed and venture-backed IPOs, uncovering some interesting differences but also similarities of the two. The paper provides evidence to contradict media criticism of PE sponsors. It can also have important policy implications regarding the PE regulatory framework. Finally, this work comes as a timely contribution given the increasing importance of PE in the IPO market.

Do Export Activities Matter for the Performance and Survival of IPO Firms?

We examine the effect of export activity on the pricing of initial public offerings (IPOs) and their post-IPO performance and survival. On the one hand, foreign market operations diversify a firm’s revenue base and the risk of domestic cash flow shocks and may also provide an entree into foreign sources of financing. On the other hand, export activity may bring additional risk and complexity leading to greater uncertainty about the pricing of the IPO. Indeed, relative to non-exporting IPO firms, exporting IPO firms are significantly smaller, are riskier according to standard measures, and have higher expenditures on research and development. Using a sample of 4,837 IPO firms from 1986 to 2010, we find that IPO firms with export activity have a significantly lower level of underpricing than IPO firms without export activity after controlling for all factors known to influence IPO initial returns. In addition, the risk-adjust returns of exporting IPO firms outperform non-exporting IPO firms by 55 - 122 basis points on a monthly basis over either three or five year periods after the IPO. Our initial return and long-run return results are highly robust to propensity score matching techniques which account for possible reversed causality and selection bias. Lastly, we find that exporting IPO firms have significantly higher survival rates than non-exporting IPO firms; the hazard rate of firms that export around IPO years is 54 - 71% of firms that do not export. Overall, we provide strong evidence that export activity has an economically significant effect on the valuation and subsequent performance of IPO firms.

The causes and consequences of venture capital stage financing

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the physical location of an entrepreneurial firm and the geographic distance between the VC investor and the firm, I show that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round. However, VC investors' propensity to stage is independent of whether the firm is located in a close-knit community. I also find that VC staging positively affects the entrepreneurial firm's propensity to go public, operating performance in the initial public offering (IPO) year, and post-IPO survival rate, but only if the firm is located far away from the VC investor. However, the effect of VC staging on entrepreneurial firm's performance is independent of whether it is located in a close-knit community. The findings are robust to a variety of alternative proximity measures, instrumental variables, and econometric approaches for dealing with endogeneity problems.

Post-IPO Actions and Firm Survival: More than Signaling?

Entrepreneurial firms, at their birth, have a high probability of failure due to the “liability of newness.” Even firms that surmount the initial challenges and get to the stage of issuing an initial pubic offering (IPO) still face a significant hazard rate. In this paper, we examine whether, in the post-IPO stage, strategic choice matters. We examine whether management actions following an IPO enhance the firm’s survival and, second, if they do, which actions really make a difference. We analyzed a sample of 104 internet-related firms that issued IPOs between 1995 and 1999, and find that management action in three areas - market expansion, entry into alliances, and expansion or reconfiguration of the top management team and/or board of directors - significantly enhance firm survival.

Keep a Tight Leash: What Does Venture Capital Stage Financing Tell the Market?

The staging of venture capital (VC) financing allows entrepreneurial firms to mitigate the asymmetric information problem while accessing the capital markets. The VC staging signals to the market higher intrinsic quality of the entrepreneurial firms and reduces explicit and implicit costs of accessing public markets. After controlling for endogeneity of VC staging decision, I find that entrepreneurial firms receiving multiple rounds of VC financing are more likely to access funds through IPO rather than acquisition. Such going public firms experience lower underpricing and are valued significantly higher by the market. The higher intrinsic quality of IPO firms financed through multiple VC rounds is later confirmed by their superior post-IPO stock returns, operating performance, and survival rates.

The Causes and Consequences of Venture Capital Stage Financing

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the physical location of an entrepreneurial firm and the geographic distance between the VC investor and the firm, I show that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round. However, VC investors’ propensity to stage is independent of whether the firm is located in a close-knit community. I also find that VC staging positively affects the entrepreneurial firm’s propensity to go public, operating performance in the initial public offering (IPO) year, and post-IPO survival rate, but only if the firm is located far away from the VC investor. However, the effect of VC staging on entrepreneurial firm’s performance is independent of whether it is located in a close-knit community. The findings are robust to a variety of alternative proximity measures, instrumental variables, and econometric approaches for dealing with endogeneity problems.

Are powerful CEOs beneficial to post-IPO survival in high technology industries?: An empirical investigation

Does a powerful CEO affect firm survival after an initial public offering (IPO) in a high technology industry? Survival after an IPO is a critical business issue; executive power is a dimension missing from much of the research on managerial factors that affect post-IPO survival. We evaluate our research question by formulating hypotheses that link four aspects of CEO power (prestige, expert, structural, ownership) to five-year post-IPO survival in computer-related industries. Using logistic regression, we find that CEO prestige education, industry tenure, and equity ownership are positively related to post-IPO survival, whereas structural power (specifically dual CEO/Chair title) reduces five-year, post-IPO survival.