The New Game in Town: Competitive Effects of IPOs

Posted: 22 Mar 2009

See all articles by Scott Hsu

Scott Hsu

University of Arkansas - Department of Finance

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Jörg Rocholl

ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: March, 20 2009

Abstract

We analyze the effect of Initial Public Offerings (IPOs) on industry competitors and provide evidence that firms experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to IPO withdrawals. Following a successful IPO in their industry, firms 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.

Keywords: IPOs, competitive effects, financial certification, knowledge capital

JEL Classification: G30

Suggested Citation

Hsu, Scott and Reed, Adam V. and Rocholl, Joerg, The New Game in Town: Competitive Effects of IPOs (March, 20 2009). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1365940

Scott Hsu

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Adam V. Reed

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Joerg Rocholl (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin
Germany

HOME PAGE: http://www.esmt.org/en/159244

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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