Why Does an IPO Impact Rival Firms?

Review of Financial Studies, Forthcoming

63 Pages Posted: 14 Jun 2014 Last revised: 24 Jul 2019

See all articles by Matthew I. Spiegel

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: December 10, 2018

Abstract

IPO firms’ rivals tend to experience performance declines following an IPO in the industry. Why? We estimate a dynamic structural oligopoly model to distinguish among alternative theories that can explain an industry’s evolution post-IPO. We find that most changes in rivals’ performance are due to industry trends that also drive IPOs. However, there are also some “competitive” IPOs where the IPO enhances the IPO firm’s performance, at the expense of competitors. These findings help reconcile prior evidence of average performance reductions of both IPO firms and their rivals with well-known cases in which firms have benefited from going public.

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, Why Does an IPO Impact Rival Firms? (December 10, 2018). Review of Financial Studies, Forthcoming. 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

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