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Why Does An Ipo Impact Rival Firms
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Book Synopsis Why Does an IPO Impact Rival Firms? by : Matthew I. Spiegel
Download or read book Why Does an IPO Impact Rival Firms? written by Matthew I. Spiegel and published by . This book was released on 2019 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: IPO firms' rivals tend to experience performance declines following an IPO in the industry. Why? We estimate a dynamic structural oligopoly model to distinguish among alternative theories that can explain an industry's evolution post-IPO. We find that most changes in rivals' performance are due to industry trends that also drive IPOs. However, there are also some “competitive” IPOs where the IPO enhances the IPO firm's performance, at the expense of competitors. These findings help reconcile prior evidence of average performance reductions of both IPO firms and their rivals with well-known cases in which firms have benefited from going public.
Book Synopsis Intra-Industry Effects of IPOs on Stock Repurchase Decisions of Rival Firms by : Thanh Thiet Nguyen
Download or read book Intra-Industry Effects of IPOs on Stock Repurchase Decisions of Rival Firms written by Thanh Thiet Nguyen and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies suggest that the market perceives IPOs as bad news (i.e., competitive threats) to existing firms in the same industry. At the same time, the market has a tendency to be overly optimistic about IPO prospects, especially during hot IPO markets. Thus, the negative industry rival reaction could be the result of investors' over-optimism toward the IPOs' growth prospects and underestimation of the competitive positions of industry rivals. Our findings show that rival firms use repurchases as a means to signal their firm quality, as well as to correct the market's overreaction to the bad news. These IPO-induced repurchases are stronger when the rival firms are in a concentrated industry and experienced poor stock performance in the previous year.
Book Synopsis Initial Public Offerings and Rival Firm Performance by : Joseph Henry
Download or read book Initial Public Offerings and Rival Firm Performance written by Joseph Henry and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I study the impact of a firms initial public offering (IPO) on the performance of that firms rivals. Recognizing that the IPO is an endogenous decision, I instrument for the explanatory variable of interest, an IPO completion indicator, using the two-month NASDAQ return beginning on the IPO filing date. I use sales growth, return on assets (ROA), and market-to-book (M/B) value as my primary measures of rival performance. After accounting for the endogeneity of the IPO decision, I find no sample-wide effect of IPOs on rival performance, in contrast to prior evidence. However, I do find evidence that post-IPO rival performance varies with a rivals degree of rival financial constraints. Relative to less constrained peers, rivals with low cash or high leverage exhibit lower M/B values up to three years following the IPO. There is also some evidence that constrained rival ROA is lower following industry IPOs. I provide causal evidence of the competitive impact of IPOs, and I show that the competitive impact is limited. However, my results also highlight a material cost of IPO activity for the issuers financially-constrained rivals.
Book Synopsis Does an Industry Effect Exist for Initial Public Offerings? by : Aigbe Akhigbe
Download or read book Does an Industry Effect Exist for Initial Public Offerings? written by Aigbe Akhigbe and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of initial public offerings (IPOs) on rival firms and find that the valuation effects are insignificant. This insignificant reaction can be explained by offsetting information and competitive effects. Significant positive information effects are associated with IPOs in regulated industries and the first IPO in an industry following a period of dormancy. Significant negative competitive effects are associated with larger IPOs in competitive industries, those in relatively risky industries, those in high performing industries, and those in the technology sector. IPO firms that use the proceeds for debt repayment appear to represent a more significant competitive threat to rival firms relative to IPO firms that use their proceeds for other purposes.
Book Synopsis The Oxford Handbook of Entrepreneurial Finance by : Douglas Cumming
Download or read book The Oxford Handbook of Entrepreneurial Finance written by Douglas Cumming and published by OUP USA. This book was released on 2012-03-22 with total page 937 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides a comprehensive picture of issues dealing with different sources of entrepreneurial finance and different issues with financing entrepreneurs. The Handbook comprises contributions from 48 authors based in 12 different countries.
Book Synopsis Essays on the Role of Competitor-specific Human Capital on Initial Public Offerings (ipos) Performance by : Tapan Seth
Download or read book Essays on the Role of Competitor-specific Human Capital on Initial Public Offerings (ipos) Performance written by Tapan Seth and published by . This book was released on 2014 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation splits the idea of competitor-specific human capital into two types: competitor-specific-direct (CSD) human capital and competitor-specific-indirect (CSI) human capital, and inspects how these two types of human capital held by IPO Top Management Team (TMT) members are associated with IPO performance. Furthermore, by utilizing research on human capital, competitive dynamics, and knowledge-based view of the firm, this dissertation identifies important antecedents that result in higher degree of impact of such human capital on the IPO firm, and IPO firm's capabilities absorb such knowledge that results in higher valuations at IPO. By employing a multi-year panel data of new IPOs between 1995-2010 within the context of U.S. semiconductor industry, the first chapter shows that the prevalence of CSD and CSI knowledge in the TMT of IPO firms leads to higher market valuations of the IPO firm. Moreover, the results show that the prior employment characteristics such as tenure and the position held at competitor firms, and the complexity of the competitor source firm (the product-market diversity and the learning emphasis) moderate the relationship between CSD and CSI human capital and IPO performance. The second chapter explores internal characteristics of the IPO firm that facilitate its ability to exploit the CSD and CSI human capital. I argue that in the context of new ventures, TMT intellectual capital plays an integral role in churning information into useful knowledge of one's competitors or group of competitors. Additionally, results indicate that TMT's potential absorptive capacity, shared team-specific experience, and CEO's functional background influence the relationship between CSD and CSI human capital and IPO performance.
Book Synopsis The Impact of Firm and Information Production on the Aftermarket Liquidity of IPO Firms by : Qian Yao
Download or read book The Impact of Firm and Information Production on the Aftermarket Liquidity of IPO Firms written by Qian Yao and published by . This book was released on 2016 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the relationship between the aftermarket liquidity and underpricing of IPO firms by examining a sample of U.S. IPOs issued during the period 1996-2011. We first explore the relationship between stock liquidity (e.g., turnover and Amihud illiquidity) and underpricing during a one-year period after the IPO. Our results suggest that underpricing indeed boosts aftermarket liquidity and is thus in line with similar findings in the previous literature. Thus, a possible mechanism is likely to link the initial returns of IPO with lasting higher aftermarket liquidity. In this context, we propose and examine that ?information production? hypothesis that IPO firms experience more information revelation to realize a ?market appetite? for newly issued shares. Our empirical results demonstrate that analyst coverage, measured by the number of analysts following the IPO, and news reports, measured by the number of news mentioning the IPO firm, are two probable sources for information generation after the IPO. With a higher level of underpricing, IPO companies will certainly attract more analysts and more media coverage. Then, we check the link between information generation after the IPO and liquidity post-listing. Consistent with our expectations, there is a positive and significant relationship between the number of analysts and liquidity, and the number of news and liquidity. Based on this finding, we conclude that more information generation possibly induces attention among institutional investors and the public, which in turn causes higher aftermarket liquidity. Our study indicates that the underpricing of IPO firms serves as a possible compensation for underwriters and potential investors to obtain more analyst coverage and media attention, which is positively related to higher aftermarket liquidity.
Download or read book שושנת יעקב על ש"ע חושן משפט written by and published by . This book was released on 1991 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Competitive Effect of Rivals' Earnings News on Initial Public Offerings by : Tony Ruan
Download or read book The Competitive Effect of Rivals' Earnings News on Initial Public Offerings written by Tony Ruan and published by . This book was released on 2014 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how the release of industry rivals' earnings news during the IPO book-building period affects a firm's process of going public. The aggregate effect of rivals' earnings news is measured by a signal-to-noise ratio. Higher signal-to-noise ratios indicate better rivals' earnings news, and vice versa. For a sample of 6,781 completed IPOs, we find that the signal-to-noise ratio has a significantly negative valuation effect on both price revision and initial return. Moreover, the negative valuation effect on initial return is stronger for issuers of higher quality and those in less competitive industries. Finally, the Probit regression of a pooled sample of 8,044 completed and withdrawn offerings shows that an IPO firm with a higher signal-to-noise ratio is more likely to be withdrawn. Collectively, our results suggest that industry rivals' earnings news exert a competitive effect on first-time issuers.
Download or read book The IPO Decision written by Jason Draho and published by Edward Elgar Publishing. This book was released on 2004-01-01 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: Annotation Initial public offerings (IPOs) garnered unprecedented positive attention in the 1990s for their spectacular returns and central role in entrepreneurial activity. Subsequent revelations of unscrupulous IPO allocation and promotion practices cast a less fa.
Book Synopsis The Effect of Initial Public Offering (IPO) Firm Legitimacy on Cooperative Agreements and Performance by : Timothy Scott Reed
Download or read book The Effect of Initial Public Offering (IPO) Firm Legitimacy on Cooperative Agreements and Performance written by Timothy Scott Reed and published by . This book was released on 2000-04-01 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines firm legitimacy at the time of a firm's initial public stock offering (IPO) and its impact on the quantity and quality of cooperative agreements post-IPO. Firm legitimacy is operationalized at the time of IPO as a combination of total firm value, number of employees, firm age, market-to-book ratio, and percentage of ownership maintained by the original owners. The dissertation finds that firm value, market-to-book ratio, and firm age are positively related to an increase in the quantity of cooperative agreements while only the value of the firm at time of IPO is positively related to the quality of cooperative agreements post-IPO. The dissertation also finds that increased use of cooperative agreements in the post-IPO environment does not positively affect firm performance. Firm performance is operationalized as changes in stock price, sales growth, and return on investment (ROI). A negative relationship is found to exist between increased cooperative agreements and firm ROI. These results are important because they provide some initial insights into which variables typically associated with firm legitimacy have the greatest association with the quantity and quality of cooperative agreements established by firms at the critical time of their initial public stock offerings and subsequent firm performance.
Book Synopsis The Effect of Founders in IPO Firms by : Longren Chen
Download or read book The Effect of Founders in IPO Firms written by Longren Chen and published by . This book was released on 2016 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on the impact of founder transitions in initial public offering firms. We examine transitions where the founder remains as CEO, stays in the top management team or on the board of directors, or is not in the firm anymore. We then test the model using 210 IPO firms with SIC codes in the range 7000-8999 that went public between 2000 and 2012. As robustness test, we divide the sample into IPO listings from 2000-05 and 2006-12, and differentiate between laddering vs. non-laddering related litigation, lawsuits for accounting reasons vs. non-accounting reasons, and dismissed vs. non-dismissed cases. The results suggest that firms tend to obtain higher valuations when they have professional managers. After three years, however, having the founder remain as CEO will be associated with a higher failure rate compared to having the founder leave the firm. In addition, within three years after the IPO, when a founder moves to a non-CEO role on the top management team or the board, the firms are less likely to face a lawsuit.
Book Synopsis Why Do IPO Firms Choose to Trade on the When-Issued Market? by : Arif Khurshed
Download or read book Why Do IPO Firms Choose to Trade on the When-Issued Market? written by Arif Khurshed and published by . This book was released on 2015 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the determinants of an IPO firm's choice to trade on a when-issued market and if the decision to trade on this market has any impact on the pricing of IPO shares. We find that companies that are larger, less risky, have higher future growth opportunities and are underwritten by reputable underwriters are more likely to choose to trade on the when-issued market. Our 'what-if' analysis shows that the decision to have a when-issued market affects the setting of the offer price. For companies that have when-issued trading, the actual offer price is 25% higher than it it would have been had these firms not had a when-issued market. We interpret this higher offer price as a 'rent' that investors pay to acquire shares of such companies. Interestingly this rent is paid mostly in those IPOs where retail investors are allowed to participate in the offer. When-issued market appears to be highly informative for investors and has a positive impact on the trading volume on the first day of unconditional trading.
Book Synopsis Dual Class IPOs, Share Recapitalizations, and Unifications by : Thomas J. Chemmanur
Download or read book Dual Class IPOs, Share Recapitalizations, and Unifications written by Thomas J. Chemmanur and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a firm's choice between dual class and single class share structures, either at IPO or subsequently, prior to an SEO. We consider an entrepreneur (incumbent) who obtains both security benefits and private benefits of control, and who wishes to sell equity to outsiders to raise financing to implement his firm's project. The incumbent may be either talented (lower cost of effort, comparative advantage in implementing projects) or untalented: the incumbent's ability is private information, with outsiders observing only a prior probability that he is talented (his reputation). The firm's project may be either long-term (intrinsically more valuable, but showing less signs of success in the short run) or short-term (faster resolution of uncertainty). Thus, under a single class share structure, an incumbent has a greater chance of losing control to potential rivals if he undertakes the long-term project, since outside equity holders may vote for the rival if they believe that the project is not progressing well. A dual class share structure allows the incumbent to have enough votes to prevail against any rival, but may be misused by untalented incumbents to dissipate value by not exerting effort. In equilibrium, the incumbent simultaneously chooses the IPO share structure (dual class or single class), project type (long-term or shortterm), and how much effort to exert. Our results help to explain firms' choices between dual class and single class IPOs and the relative post-IPO operating performance of dual class versus single class IPO firms. We also characterize the situations under which a firm will undergo a share unification or a dual class recapitalization, the announcement effect of these events on the firm's equity, and their effect on its subsequent operating performance. Finally, our model provides testable predictions for the conditions under which firms will include stronger antitakeover provisions in their corporate charters and the relationship between the prevalence of such provisions in a firm's charter and its post-IPO operating performance.
Book Synopsis The Facebook IPO by : Matthias Walgenbach
Download or read book The Facebook IPO written by Matthias Walgenbach and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the past there have been several studies who analyzed and confirmed a relationship between an initial public offering (IPO) and effects on the industry of the company going public as well as on the lead underwriters. This study sets out to identify through an event study of the IPOs of Facebook, Groupon and Zynga, if those effects can be confirmed within the Internet industry. The key findings of the study are threefold: First, our findings suggest there are intra-industry effects triggered both by the IPO itself, as well as a severe post-IPO underperformance. Secondly, no such effects could be found with respect to the lead underwriters. Thirdly, we did not identify any special circumstances in the case of Facebook, compared to the other two IPOs studied.
Book Synopsis Informational Externalities of Going Public Decisions by : Carmen Cotei
Download or read book Informational Externalities of Going Public Decisions written by Carmen Cotei and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation I examine the informational externalities of going public decisions for industrial and banking sector. The results show that industrial rivals have positive valuation effects only in response to venture backed IPOs and no significant reaction in response to non-venture backed IPOs. I also find evidence that the effect on rival firms is stronger if they operate in low concentrated industries (i.e. high competition) and have low growth opportunities. The relative size of IPO firm seems to play an important role in the direction and magnitude of industry rivals' valuation effects. Negative information revealed in the form of downward price revisions adversely affect rival firms2 valuation. Positive information is also conveyed at the IPO announcements in banking industry. Bank rivals experience wealth gains if they are headquartered in the same state and no valuation effects if they are headquartered in the same region as the announcing bank. However, positive and significant reactions are noted in Mid-Atlantic and Southwest regions and negative reaction in Midwest region. Overall, these findings confirm that IPOs convey valuable information to the market and investors use this information to reassess the value of the rival firms.
Book Synopsis The Impact of Internationalization on Post-IPO Performance of Firms by : Fazli Wahid
Download or read book The Impact of Internationalization on Post-IPO Performance of Firms written by Fazli Wahid and published by . This book was released on 2015 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relationship between the degree of internationalization at the time of IPO (initial public offering) and post-IPO market performance of US and Canadian firms. This proposition derives its support from the synthesis of major theories of international business with signaling and information asymmetry theory. Theories of international business are developed from the perspectives of the behaviour and decision-making of managers of the firms, whereas signaling and information asymmetry theory are about communicating to external investors; and thereby incorporates the assessments of these investors. After the IPO, investors become substantial equity holders in the firms. Therefore, the integration of the two streams of theories will help us understand how investors evaluate the degree of internationalization at the time of IPO. The basic premise of this integration is that theories of internationalization have identified a number of benefits of international expansion of firms. In this research, I assume that these benefits of international expansion provide positive signals to potential investors. As signaling is related to information asymmetry, these positive signals reduce the information asymmetry of investors, inducing them to value firms with the most internationalization. Further, drawing support from international new venture theory and the resource-based view (RBV) of the firm, this study explores the premise that international new ventures (INVs) go public earlier than other traditional firms. Rapid growth through international expansion requires substantial financial resources. One way to raise capital for this rapid international expansion is to go public earlier. As the speed of internationalization and early IPO might send strong positive signals to external investors, INVs would go public earlier. Data on post-IPO returns, volatility of returns, underpricing, and other characteristics of the firm, including the scale and scope of international sales, was extracted from a number of secondary sources including different databases and company prospectuses. The sample is restricted to IPO firms in the manufacturing and service sectors, headquartered in the US and Canada, that issued initial public offerings from 2001 to 2011. Post-IPO performance was measured in three ways: compound holding period returns, relative volatility of returns, and underpricing. The three measures of post-IPO performance are used to capture different aspects of performance, including the value assessed by external investors and insiders, and risk diversification. Internationalization-performance relationships have been extensively evaluated using linear models. However, recent studies have found non-linear forms of the relationship. This study provides a theoretical rationale and evaluates the relationship between internationalization and post-IPO performance using both linear and non-linear models. Internationalization is a complex phenomenon and may not be appropriately evaluated using simple linear models. Therefore, this study assumes a U-shaped relationship between the degree of internationalization and compound holding period returns and an inverted U-shaped relationship between the degree of internationalization and relative volatility of returns and underpricing. Using least square regression, the results confirm the existence of non-linear relationships between internationalization and compound holding period returns and relative volatility of returns. I find support for the idea that higher geographic scope provides a positive signal to potential investors. My findings indicate that higher geographic scope at the time of an IPO not only results in higher post-IPO returns, but also reduces the relative volatility of returns and underpricing. In the case of underpricing, higher intensity also leads to lower underpricing. The present study identifies an optimal point beyond which internationalization has a positive impact on performance. The implication is that management could signal future performance through both higher geographic scope and higher intensity of internationalization. In a similar way, investors can make more informed decisions using these signals. In contrast, at lower levels, internationalization is not related to compound holding period returns and underpricing, but it is positively associated with relative volatility. This implies that investors perceive lower levels of internationalization as more risky compared to higher levels. The findings have implications for both investors and management. Investors can utilize the findings of higher geographic scope resulting in a desirable outcome of higher returns and lower risk to make decisions that are more informed. The results also provide a strong strategic message to management considering going public of the potential benefits of higher internationalization. Contributions to the literature include: synthesizing theories of internationalization with signaling and information asymmetry theories, testing the non-linearity of the internationalization-performance relationship in the IPO context, evaluating the risk diversification aspect of multinationality in the context of IPO, and addition to the limited research on the link between internationalization and post-IPO performance. As simple linear and curvilinear approaches may not reveal the complexity of internationalization-performance relationship, this study introduces a dummy category approach in order to examine the relationship from different angles such as the impact of high and low internationalization, separating the effects of domestic firms, and identification of a threshold.
