What a Relief: How do Firms Respond to Competitors’ Listing Delays?
63 Pages Posted: 5 Mar 2020
Date Written: February 9, 2020
We examine how existing public firms (“incumbent firms”) respond to the listing delays of their competitors. Using regulation-induced initial public offering (IPO) suspensions in China that expose firms already approved for an IPO to indeterminate listing delays, we find that, in response to the declining expectation of imminent threat, incumbent firms reduce their defensive moves. Specifically, they reduce aggressive M&As activities, tighten working capital management to enhance operating efficiency, and engage in less aggressive management disclosure, which lead to an improvement in the overall financial performance. The main results are more pronounced for incumbent firms that encounter greater competitive pressure from other public rivals, face severer threat from the IPO competitor, and hold a dominant position in their industry. After IPO suspensions are over and competitors resume their listing process, incumbent firms appear to regain defensive stance only via aggressive disclosure, but do not change their investment and operating activities. Our paper sheds new light on the dynamic interactions among product market competitors.
Keywords: Dynamic Competition, Initial Public Offerings, Defensive Moves
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