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

69 Pages Posted: 25 Sep 2018 Last revised: 14 Aug 2019

See all articles by Donald E. Bowen III

Donald E. Bowen III

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

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Gerard Hoberg

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

Date Written: July 30, 2019

Abstract

We study the determinants of startups' choice of exit using novel measures of startups' technological characteristics constructed from patent text. We show 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 are consistent with IPOs being 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 patents' disruptive potential between 1930 to 2010, and show that this trend explains about 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 (July 30, 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

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

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

Laurent Frésard (Contact Author)

Universita della Svizzera italiana (USI 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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