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Leaders and Followers in a Hot IPO Market

By Shantanu Banerjee, Ismail Ufuk Güçbilmez and Grzegorz Pawlina

Abstract

We explain why some private firms lead a hot IPO market by going public early, while others follow by delaying their IPOs until late in the same market. In our model, firms go public to invest in a project that can either be a low- or high-growth one. The projects add value only in the good state of economy. In this setting, leaders commit to invest before the state of economy becomes known. This way, they become more likely to invest in a high-growth project. They content with issuing underpriced shares, to prevent followers from pooling. We find evidence for our arguments in the U.S. IPO market: Early IPOs of a hot market are underpriced more severely on average, but they experience higher growth in sales, assets, EBITDA, and capital expenditure, however. Moreover, their shares outperform the market up to nine months after their issues, while those of late IPOs underperform the market from the start

Topics: Initial public offerings, underpricing, first-mover advantage
Year: 2009
OAI identifier: oai:CiteSeerX.psu:10.1.1.318.5793
Provided by: CiteSeerX
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