The Path-to-Profitability of Internet IPO Firms

39 Pages Posted: 11 Jul 2007

See all articles by Bharat A. Jain

Bharat A. Jain

Towson University

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Omesh Kini

Georgia State University

Abstract

Extant empirical evidence indicates that the proportion of firms going public prior to achieving profitability has been increasing over time. This phenomenon is largely driven by an increase in the proportion of technology firms going public. Since there is considerable uncertainty regarding the long-term economic viability of these firms at the time of going public, identifying factors that influence their ability to attain key post-IPO milestones such as achieving profitability represents an important area of research. We employ a theoretical framework built around agency and signaling considerations to identify factors that influence the probability and timing of post-IPO profitability of Internet IPO firms. We estimate Cox Proportional Hazards models to test whether factors identified by our theoretical framework significantly impact the probability of post-IPO profitability as a function of time. We find that the probability of post-IPO profitability increases with pre-IPO investor demand and change in ownership at the IPO of the top officers and directors. On the other hand, the probability of post-IPO profitability decreases with the venture capital participation, proportion of outsiders on the board, and pre-market valuation uncertainty.

Keywords: Initial public offerings, Internet firms, Path-to-profitability, Hazard models, Survival

Suggested Citation

Jain, Bharat A. and Jayaraman, Narayanan and Kini, Omesh, The Path-to-Profitability of Internet IPO Firms. Journal of Business Venturing, Forthcoming. Available at SSRN: https://ssrn.com/abstract=998724

Bharat A. Jain

Towson University ( email )

8000 York Road
Towson, MD 21252
United States
410-704-3542 (Phone)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Omesh Kini (Contact Author)

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

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