Technological Disruptiveness and the Evolution of IPOs and Sell-Outs

64 Pages Posted: 25 Sep 2018 Last revised: 1 Mar 2019

See all articles by Donald E. Bowen III

Donald E. Bowen III

Virginia Tech - Department of Finance, Insurance, and Business Law

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: January 13, 2019

Abstract

We show that the recent decline in IPOs on U.S. markets is related to changes in the technological disruptiveness of startups, which we measure using textual analysis of patents from 1930 to 2010. We focus on VC-backed startups and show that those with ex-ante disruptive technologies are more likely to exit via IPO and less likely to exit via sell-out. This is consistent with IPOs being favored by firms with the potential to carve out independent market positions with strong defenses against rivals. We document an economy-wide trend of declining technological disruptiveness since World War II that accelerated since the late 1990s. This trend predicts fewer IPOs and more sell-outs, and we find that roughly 20% of the recent dearth of IPOs, and 49% of the surge in sell-outs, can be attributed to changes in firms' technological characteristics.

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 Disruptiveness and the Evolution of IPOs and Sell-Outs (January 13, 2019). Finance Down Under 2019 Building on the Best from the Cellars of Finance. Available at SSRN: https://ssrn.com/abstract=3245839 or http://dx.doi.org/10.2139/ssrn.3245839

Donald E. Bowen III

Virginia Tech - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

Laurent Frésard (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
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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