Ipos and Product Quality
Journal of Business
Posted: 12 Oct 2000
Given recent public attention paid to high-flying internet IPOs such as Yahoo and Amazon.com, this paper explores a product market motive for going public. We develop a model where consumers look to the stock price to make inferences. The model predicts that only better quality firms will go public. Effects of IPO announcements on rival firms' stock prices are related to inferences of market size and market share. The model also predicts that the likelihood of "hot issue" markets depends on the distribution of market size uncertainty and the degree of network externalities present in consumer preferences.
JEL Classification: G24, G32
Suggested Citation: Suggested Citation