The New Game in Town: Competitive Effects of IPOs

We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, the...

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Bibliographic Details
Published in:The Journal of finance (New York) 2010-04, Vol.65 (2), p.495-528
Main Authors: HSU, HUNG-CHIA, REED, ADAM V., ROCHOLL, JÖRG
Format: Article
Language:English
Subjects:
Business structures
Competition
Competitive advantage
Competitiveness
Corporate finance
Financial leverage
Financial performance
Impact analysis
Incumbents
Industrial concentration
Industrial market
Initial public offering
Initial public offerings
Sales growth
Statistical significance
Stock prices
Studies
Working capital
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Summary:We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO-related competitive advantages through the loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross-section of underperformance as well as survival probabilities for competing firms.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2009.01542.x