IPO Peer Effects

58 Pages Posted: 5 May 2021 Last revised: 2 Mar 2022

See all articles by Cyrus Aghamolla

Cyrus Aghamolla

University of Minnesota - Twin Cities

Richard T. Thakor

University of Minnesota - Carlson School of Management; Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Date Written: April 29, 2021

Abstract

This study investigates whether a private firm's decision to go public affects the IPO decisions of its competitors. Using detailed data from the drug development industry, we identify a private firm's direct competitors at a precise level through a novel approach using similarity in drug development projects based on disease targets. The analysis shows that a private firm is significantly more likely to go public after observing the recent IPO of a direct competitor, and this effect is distinct from "hot" market effects or other common shocks. Furthermore, our effects are centered on firms that operate in more competitive areas. We additionally explore peer effects in private firm funding propensities more broadly, such as through venture capital or being acquired, and find results consistent with a competitive channel.

Keywords: Initial public offerings, IPO propensity, peer effects, R&D competition, information spillovers

JEL Classification: D22, G14, G32, O31

Suggested Citation

Aghamolla, Cyrus and Thakor, Richard T., IPO Peer Effects (April 29, 2021). Journal of Financial Economics, Vol. 144, No. 1, 2022, Available at SSRN: https://ssrn.com/abstract=3836954 or http://dx.doi.org/10.2139/ssrn.3836954

Cyrus Aghamolla (Contact Author)

University of Minnesota - Twin Cities ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Richard T. Thakor

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street, E62-618
Cambridge, MA 02142
United States

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