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The Competitive Effect of Rivals' Earnings News on Initial Public Offerings

49 Pages Posted: 21 Nov 2009 Last revised: 12 Feb 2014

Tony Ruan

Xiamen University

Hong Qian

Oakland University - Department of Accounting and Finance

Date Written: February 12, 2014

Abstract

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 Finally, the Probit regression of a pooled sample of 8,044 completed and withdrawn offerings shows that an IPO firm with a higher signal-to-noise ratio is more likely to be withdrawn.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.

Keywords: IPOs, Competitive Effect, Rivals' Earnings Surprises, Price Revision, Initial Return, Withdrawn Offerings, Post-IPO Operating Performance

JEL Classification: G12, G14, G24

Suggested Citation

Ruan, Tony and Qian, Hong, The Competitive Effect of Rivals' Earnings News on Initial Public Offerings (February 12, 2014). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=1508482 or http://dx.doi.org/10.2139/ssrn.1508482

Tony Ruan (Contact Author)

Xiamen University ( email )

Xiamen, Fujian 361005
China

Hong Qian

Oakland University - Department of Accounting and Finance ( email )

United States

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