From Private to Public: The Influence of Unicorn Categorization on IPO Investor Behavior
51 Pages Posted: 5 Sep 2020 Last revised: 21 Jan 2024
Date Written: January 1, 2024
Abstract
We use the introduction of the Unicorn label to reference venture-backed firms with valuations above $1 billion to examine how firm categorization influences investor demand and retail trade activity. Our findings suggest that the positive appeal associated with an IPO firm’s Unicorn categorization increases public market investor demand, particularly among retail investors. Moreover, our findings indicate that the Unicorn categorization label affects retail trade activity both directly and indirectly through the mediating effects of news coverage. Additional findings reveal that there is no significant relation between Unicorn categorization and future operating performance and that Unicorn categorization relates negatively to post-IPO stock performance. Together, our findings shed new light on the interconnectedness between private and public markets by providing evidence that labels used to categorize private firms have public market spillover consequences.
Keywords: initial public offering, individual investors, media, financial statement analysis, unicorns
JEL Classification: G10, M13, M41
Suggested Citation: Suggested Citation