IPO Market Timing

Aydoğan Altı

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Financial Markets and Investment Strategies Corporate Finance and Governance Private Equity and Venture Capital

Abstract

I develop a model of information spillovers in initial public offerings (IPOs). The outcomes of pioneers’ IPOs reflect participating investors’ private information on common valuation factors. This makes the pricing of subsequent issues relatively easier and attracts more firms to the IPO market. I show that IPO market timing by the followers emerges as an equilibrium clustering pattern. High offer price realizations for pioneers’ IPOs better reflect investors’ private information and trigger a larger number of subsequent IPOs than low offer price realizations do. This asymmetry in the spillover effect is more pronounced early on in a hot market. The model provides an explanation for recent empirical findings that illustrate the high sensitivity of going public decision to IPO market conditions.

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References

2002Market Timing and Capital Structure 1986Why new issues are underpriced 2001New Evidence and Perspectives on Mergers 1998Why Do Companies Go Public? An Empirical Analysis 1989How investment bankers determine the offer price and allocation of new issues 1984The "Hot Issue" Market of 1980 1996The impact of industry shocks on takeover and restructuring activity 1989Signalling by underpricing in the IPO market

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2009A Theory of Merger-Driven IPOs 2014Robust determinants of IPO underpricing and their implications for IPO research 2010Merger‐Motivated IPOs 2011Can VCs Time the Market? An Analysis of Exit Choice for Venture-Backed Firms 2011IPO Timing, Buyout Sponsors’ Exit Strategies, and Firm Performance of RLBOs 2012IPO Waves, Product Market Competition, and the Going Public Decision: Theory and Evidence

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