Navigating New Terrain: Geographical Dispersion and Survival Dynamics

Abstract

Using a text-based metric as a proxy for a firm’s geographical diversification, our study uncovers a heightened risk of failure among newly listed firms with extensive geographic dispersion. While this dispersion contributes positively to post-IPO sales growth, it concurrently erodes post-IPO operating performance and managerial investment efficiency. Additionally, we identify a greater propensity for geographically dispersed firms to engage in earnings management, exacerbating their vulnerability to survival challenges, particularly in environments abundant with soft information. However, certain mitigating factors such as metropolitan headquarters, robust corporate governance practices, and institutional ownership emerge as critical in offsetting the adverse effects of geographic dispersion. Overall, our results align with the argument that IPO firms with geographic dispersion face intensified information asymmetry, diverting managerial focus from enhancing shareholder value.

Keywords: Initial Public Offerings (IPOs), Firm Survival, Geographic Concentration, Firm Location