Cash Crisis in Internet-Based Ipos During the 1990s Bubble

Temple University Fox School Innovation and Entrepreneurship Institute Discussion Paper No. 03-25

41 Pages Posted: 25 Apr 2004

See all articles by Ram Mudambi

Ram Mudambi

Temple University - Department of Strategic Management

Monica Zimmerman Treichel

Independent

Date Written: March 2003

Abstract

This study examines why, even when financial resource constraints are significantly relaxed, some new ventures struggle to survive while others prosper. Using the data of approximately 200 new Internet ventures that went public during the years 1997 through 1999, we propose that the performance of new ventures is a function of pre-IPO characteristics. We determined that firm-level characteristics including top management team, financial position, networks and location are related to the performance of struggling new ventures. We found strong evidence of agency relationships, so that a substantial reduction in equity holdings by the entrepreneurial team is strong signal of impending crisis. Interestingly, similar reductions by venture capital backers did not serve as a signal of crisis. A revised version of this paper is forthcoming in the Journal of Business Venturing, Vol.20, No.4.

Keywords: internet bubble, IPOs, cash crisis

JEL Classification: G24, G33, G12

Suggested Citation

Mudambi, Ram and Treichel, Monica Zimmerman, Cash Crisis in Internet-Based Ipos During the 1990s Bubble (March 2003). Temple University Fox School Innovation and Entrepreneurship Institute Discussion Paper No. 03-25, Available at SSRN: https://ssrn.com/abstract=535182 or http://dx.doi.org/10.2139/ssrn.535182

Ram Mudambi (Contact Author)

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-2099 (Phone)
215-204-8029 (Fax)

HOME PAGE: http://sbm.temple.edu/~rmudambi/index.html

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