Technological Disruptive Potential and the Evolution of IPOs and Sell-Outs

66 Pages Posted: 25 Sep 2018 Last revised: 5 Dec 2019

See all articles by Donald E. Bowen III

Donald E. Bowen III

Lehigh University

Laurent Frésard

University of Lugano; Swiss Finance Institute

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: November 12, 2019

Abstract

We study the determinants of startup exit methods using novel measures of technological characteristics constructed from patent text. Our main result is that startups with more potential to disrupt technological areas are 25% more likely to exit via IPO and 19% less likely to sell-out. These results suggest that IPOs are favored by startups that can carve out independent market positions, avoiding the need to share gains with an acquirer. We document an economy-wide decline in disruptive potential between 1930 to 2010, which can explain roughly 20% of the recent decline in IPOs, and 50% of the surge in sell-outs.

Keywords: Initial Public Offerings (IPOs), Acquisitions, Sell-Outs, Technology, Disruptiveness, Venture Capital

JEL Classification: G32, G34, G24

Suggested Citation

Bowen III, Donald E. and Frésard, Laurent and Hoberg, Gerard, Technological Disruptive Potential and the Evolution of IPOs and Sell-Outs (November 12, 2019). Finance Down Under 2019 Building on the Best from the Cellars of Finance; Swiss Finance Institute Research Paper No. 19-22. Available at SSRN: https://ssrn.com/abstract=3245839 or http://dx.doi.org/10.2139/ssrn.3245839

Donald E. Bowen III

Lehigh University ( email )

Bethlehem, PA 18015
United States

Laurent Frésard (Contact Author)

University of Lugano ( email )

Lugano, 900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

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