Innovation, Appropriability and the Underpricing of Initial Public Offerings

Posted: 6 Mar 2009

See all articles by Michael B. Heeley

Michael B. Heeley

Colorado School of Mines

Sharon F. Matusik

University of Colorado at Boulder - Leeds School of Business

Neelam Jain

City, University of London

Abstract

Using the information asymmetries theory of underpricing, we investigate the role of innovation in the underpricing of initial public offerings (IPOs). We develop and test a model in which innovation outputs (patents) reduce information asymmetries in industries where the link between patents and inventive returns is transparent, thereby reducing underpricing. Conversely, these innovation outputs (patents) reflect increased information asymmetries and underpricing in industries where the link is opaque. We examine the relationship between patents and first-day stock returns in a sample of 1413 IPOs by manufacturing firms and find strong support for our hypotheses. In so doing, we make an important theoretical contribution by showing that the IPO market contextualizes firm information. That is, firm information is interpreted differently by the IPO market, depending on the firm's competitive context.

JEL Classification: D82, G32, L10

Suggested Citation

Heeley, Michael B. and Matusik, Sharon F. and Jain, Neelam, Innovation, Appropriability and the Underpricing of Initial Public Offerings. Academy of Management Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=893445

Michael B. Heeley (Contact Author)

Colorado School of Mines ( email )

816 15th Street
Golden, CO 80401
United States
303-273-3167 (Phone)

Sharon F. Matusik

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Neelam Jain

City, University of London ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,171
PlumX Metrics