The Disappearing Small IPO and the Lifecycle of the Small Firm

38 Pages Posted: 26 Feb 2014 Last revised: 1 Dec 2015

See all articles by Steven Davidoff Solomon

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Paul Rose

Ohio State University - Moritz College of Law; Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Tufts University - The Fletcher School of Law and Diplomacy; FundaciĆ³n Instituto de Empresa, S.L. - IE Business School

Date Written: July 1, 2014

Abstract

We examine firm lifecycles of 3,081 IPOs from 1996-2012. We find that small IPOs have a different lifecycle than other, larger companies. Within five years of an IPO, only 55% of small IPOs remain listed on a public exchange, compared to 61.3% and 67.1% for middle and large capitalized companies, respectively. Small IPOs largely either voluntarily or involuntarily delist while medium and large-sized companies largely exit the markets through takeover transactions. Those small companies that remain listed largely fail to grow, remaining in the small capitalized category. We use our findings to examine various theories explaining the decline of the small IPO. We find only minor evidence that regulatory changes caused the decline of the small IPO. The decline appears instead to be more attributable to the historical unsuitability of small firms for the public markets. Absent economic or market reforms which change small firm quality, further regulatory reforms to enhance the small IPO market are thus likely to be either ineffective or bring firms into the public markets which lack the horsepower to remain publicly listed.

Keywords: IPO, initial public offering, emerning growth companies, JOBS Act

JEL Classification: K22

Suggested Citation

Davidoff Solomon, Steven and Rose, Paul, The Disappearing Small IPO and the Lifecycle of the Small Firm (July 1, 2014). Harvard Business Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2400488 or http://dx.doi.org/10.2139/ssrn.2400488

Steven Davidoff Solomon (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Paul Rose

Ohio State University - Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States

FundaciĆ³n Instituto de Empresa, S.L. - IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

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