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The New Game in Town: Competitive Effects of IPOs
Author(s) -
HSU HUNGCHIA,
REED ADAM V.,
ROCHOLL JÖRG
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01542.x
Subject(s) - initial public offering , competitor analysis , business , certification , stock (firearms) , stock price , monetary economics , issuer , finance , industrial organization , economics , marketing , mechanical engineering , paleontology , management , series (stratigraphy) , engineering , biology
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.