Transitory Market Shocks and IPO Timing

79 Pages Posted: 17 Dec 2011 Last revised: 12 Mar 2024

See all articles by Jaewon Choi

Jaewon Choi

Seoul National University - Department of Economics

Daniel Sungyeon Kim

Chung-Ang University - College of Business & Economics

Sungbin Sohn

Sogang University - Department of Economics

Date Written: March 10, 2024

Abstract

Using a cointegration-based decomposition of stock market shocks, we show that the transitory component of stock returns is the main driver of firms’ IPO timing decisions. Upon transitory shocks, both weak start-ups and innovative start-ups with robust growth opportunities to go public, leading to a surge in IPO volume. Firms timing their IPOs around transitory market shocks exhibit an extreme bifurcation in long-run performances, thickening the tails of the IPO-quality distribution at both ends. We observe more occurrences of long-run outperformance, characterized by more innovative outputs and higher acquisition probabilities, alongside a substantial increase in severe underperformance and negative delistings. In contrast, we find no evidence indicating a significant relationship between positive permanent market shocks and IPO timing.

Keywords: Permanent-transitory decomposition, initial public offerings, market timing, long-run performance

JEL Classification: G02, G12, G32

Suggested Citation

Choi, Jaewon and Kim, Daniel Sungyeon and Sohn, Sungbin, Transitory Market Shocks and IPO Timing (March 10, 2024). Available at SSRN: https://ssrn.com/abstract=1973172 or http://dx.doi.org/10.2139/ssrn.1973172

Jaewon Choi

Seoul National University - Department of Economics ( email )

Korea, Republic of (South Korea)

Daniel Sungyeon Kim

Chung-Ang University - College of Business & Economics ( email )

84 Heuk-suk Ro
Seoul
Korea, Republic of (South Korea)

Sungbin Sohn (Contact Author)

Sogang University - Department of Economics ( email )

35 Baekbeom-ro
Seoul, 121-742
Korea

HOME PAGE: http://sites.google.com/view/sungbinsohn

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