Download this Paper Open PDF in Browser

Identifying an IPO's Impact on Rival Firms

67 Pages Posted: 14 Jun 2014 Last revised: 13 Apr 2016

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Date Written: April 12, 2016

Abstract

We use the IPO setting to demonstrate how the forecasts generated by a dynamic oligopoly model can help researchers overcome empirical challenges associated with establishing causality and identify appropriate control firms. Both of these are common issues in the empirical corporate finance literature. Recent papers report deteriorating performance by rivals following an IPO in the industry. Authors have attributed this to the competitive advantages a firm acquires by going public. When we reexamine this issue via a dynamic structural model, the results indicate that the value reductions across the industry primarily arise from an increased commoditization of the product market post-IPO. Based on the structural model, the paper develops a new causality test analogous to the difference-in-differences methodology and concludes that IPOs forecast future industry changes but do not cause them.

Keywords: Initial public offerings, dynamic corporate finance models, finance and product market competition

JEL Classification: G00, G30

Suggested Citation

Spiegel, Matthew I. and Tookes, Heather, Identifying an IPO's Impact on Rival Firms (April 12, 2016). Available at SSRN: https://ssrn.com/abstract=2437027 or http://dx.doi.org/10.2139/ssrn.2437027

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)

HOME PAGE: http://som.yale.edu/~spiegel

Heather Tookes (Contact Author)

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Paper statistics

Downloads
537
Rank
41,640
Abstract Views
2,192