Hostname: page-component-7c8c6479df-27gpq Total loading time: 0 Render date: 2024-03-27T09:12:56.641Z Has data issue: false hasContentIssue false

Where Have All the IPOs Gone?

Published online by Cambridge University Press:  17 January 2014

Xiaohui Gao
Affiliation:
xiaohui@rhsmith.umd.edu, Smith School of Business, University of Maryland, 4426 Van Munching Hall, College Park, MD 20742 and University of Hong Kong;
Jay R. Ritter
Affiliation:
jay.ritter@warrington.ufl.edu, Warrington College of Business Administration, University of Florida, PO Box 117168, Gainesville, FL 32611;
Zhongyan Zhu
Affiliation:
zhongyan@cuhk.edu.hk, Business School, Chinese University of Hong Kong, No 12, Chak Cheung St, Shatin NT, Hong Kong.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

During 1980–2000, an average of 310 companies per year went public in the United States. Since 2000, the average has been only 99 initial public offerings (IPOs) per year, with the drop especially precipitous among small firms. Many have blamed the Sarbanes-Oxley Act of 2002 and the 2003 Global Settlement’s effects on analyst coverage for the decline in IPO activity. We find very little support for the conventional wisdom, and we offer an alternative explanation. Our economies of scope hypothesis posits that the advantages of selling out to a larger organization, which can speed a product to market and realize economies of scope, have increased relative to the benefits of operating as an independent firm.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

References

Angel, J. “What Happened to Our Public Equity Markets?” Notre Dame Center for the Study of Financial Regulation Newsletter, Issue No. 5(2011), 4–5.Google Scholar
Arikan, A., and Stulz, R.. “Corporate Acquisitions, Diversification, and the Firm’s Lifecycle.” Working Paper, Ohio State University (2013).CrossRefGoogle Scholar
Bayar, O., and Chemmanur, T. J.. “IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists.” Journal of Financial and Quantitative Analysis, 46 (2011), 17551793.CrossRefGoogle Scholar
Benninga, S.; Helmantel, M.; and Sarig, O.. “The Timing of Initial Public Offerings.” Journalof Financial Economics, 75 (2005), 115132.Google Scholar
Bhattacharya, U.; Borisov, A.; and Yu, X.. “Firm Mortality and Natal Financial Care.” Journalof Financial and Quantitative Analysis, forthcoming (2013).Google Scholar
Bradley, D. J.; Jordan, B. D.; and Ritter, J. R.. “Analyst Behavior Following the IPO: The Bubble Period Evidence.” Review of Financial Studies, 21 (2008), 101133.CrossRefGoogle Scholar
Brau, J. C.; Couch, R.; and Sutton, N.. “The Desire to Acquire and IPO Long-Run Performance.” Journal of Financial and Quantitative Analysis, 47 (2012), 493510.CrossRefGoogle Scholar
Brau, J. C., and Fawcett, S. E.. “Initial Public Offerings: An Analysis of Theory and Practice.” Journal of Finance, 61 (2006), 399436.CrossRefGoogle Scholar
Brau, J. C.; Francis, B.; and Kohers, N.. “The Choice of IPO versus Takeover.” Journal of Business, 76 (2003), 583612.Google Scholar
Caglio, C.; Hanley, K. W.; and Marietta-Westberg, J.. “Going Public Abroad.” Working Paper, U.S. Securities and Exchange Commission (2012).CrossRefGoogle Scholar
Campbell, J. Y.; Lettau, M.; Malkiel, B. G.; and Xu, Y.. “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk.” Journal of Finance, 56 (2001), 143.Google Scholar
Celikyurt, U.; Sevilir, M.; and Shivdasani, A.. “Going Public to Acquire? The Acquisition Motive in IPOs.” Journal of Financial Economics, 96 (2010), 345363.CrossRefGoogle Scholar
Chemmanur, T. J.; He, J.; He, S.; and Nandy, D.. “The Exit Choice of Entrepreneurial Firms.” Working Paper, Boston College (2011).Google Scholar
DeAngelo, H.; DeAngelo, L.; and Skinner, D.. “Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings.” Journal of Financial Economics, 72 (2004), 425456.Google Scholar
Demiroglu, C., and Ryngaert, M. D.. “The First Analyst Coverage of Neglected Stocks.” Financial Management, 39 (2010), 555584.Google Scholar
Doidge, C.; Karolyi, G. A.; and Stulz, R. M.. “Has New York Become Less Competitive than London in Global Markets? Evaluating Foreign Listing Choices over Time.” Journal of Financial Economics, 91 (2009), 253277.Google Scholar
Doidge, C.; Karolyi, G. A.; Stulz, R. M.. “The U.S. Left Behind: The Rise of IPO Activity around the World.” Journal of Financial Economics, 110 (2013), 546573.Google Scholar
Fama, E. F., and French, K. R.. “New Lists: Fundamentals and Survival Rates.” Journal of Financial Economics, 73 (2004), 229269.Google Scholar
Goldmanis, M.; Hortacsu, A.; Syverson, C.; and Emre, O.. “E-Commerce and the Market Structure of Retail Industries.” Economic Journal, 120 (2010), 651682.CrossRefGoogle Scholar
Gompers, P. A., and Lerner, J.. “The Really Long-Run Performance of Initial Public Offerings.” Journal of Finance, 58 (2003), 13551392.CrossRefGoogle Scholar
Helwege, J., and Liang, N.. “Initial Public Offerings in Hot and Cold Markets.” Journal of Financial and Quantitative Analysis, 39 (2004), 541569.Google Scholar
Hovakimian, A., and Hutton, I.. “Merger Motivated IPOs.” Financial Management, 39 (2010), 15471573.Google Scholar
Hsieh, J.; Lyandres, E.; and Zhdanov, A.. “A Theory of Merger-Driven IPOs.” Journal of Financial and Quantitative Analysis, 46 (2011), 13671405.CrossRefGoogle Scholar
Iliev, P. “The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices.” Journalof Finance, 65 (2010), 11631196.CrossRefGoogle Scholar
Irvine, P. J. “The Incremental Impact of Analyst Initiation of Coverage.” Journal of CorporateFinance, 9 (2003), 431451.Google Scholar
Jegadeesh, N., and Kim, W.. “Do Analysts Herd? An Analysis of Recommendations and Market Reactions.” Review of Financial Studies, 23 (2010), 901937.CrossRefGoogle Scholar
Lerner, J. “Venture Capitalists and the Decision to Go Public.” Journal of Financial Economics, 35 (1994), 293316.CrossRefGoogle Scholar
Leverty, J. T., and Qian, Y.. “Do Efficient Firms Make Better Acquisitions?” Working Paper, University of Iowa (2010).Google Scholar
Lowry, M. B. “Why Does IPO Volume Fluctuate So Much?Journal of Financial Economics, 67 (2003), 340.Google Scholar
Lowry, M. B., and Schwert, G. W.. “IPO Market Cycles: Bubbles or Sequential Learning?Journal of Finance, 57 (2002), 11711200.Google Scholar
Lucchetti, A. “U.S. Falls Behind in Stock Listings.” Wall Street Journal (May 26, 2011), A1.Google Scholar
Pástor, L., and Veronesi, P.. “Rational IPO Waves.” Journal of Finance, 60 (2005), 17131757.Google Scholar
Poulsen, A. B., and Stegemoller, M.. “Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings.” Financial Management, 37 (2008), 81101.CrossRefGoogle Scholar
Rau, P. R., and Stouraitis, A.. “Patterns in the Timing of Corporate Event Waves.” Journal of Financial and Quantitative Analysis, 46 (2011), 209246.CrossRefGoogle Scholar
Ritter, J. R.; Signori, A.; and Vismara, S.. “Economies of Scope and IPO Activity in Europe.” In Handbook of Research on IPOs, Levis, M. and Vismara, S., eds. Cheltenham, UK: Edward Elgar Publishers (2013).Google Scholar
Smith, R.; Pedace, R.; and Sathe, V.. “The Relative Importance of IPO and M&A Exits for Venture Capital Fund Financial Performance.” Financial Management, 40 (2011), 10291065.CrossRefGoogle Scholar
Sood, A., and Tellis, G. J.. “Technological Evolution and Radical Innovations.” Journal of Marketing, 69 (2005), 152168.CrossRefGoogle Scholar
Sorescu, A.; Chandy, R. K.; and Prabhu, J.. “Sources and Consequences of Radical Innovation: Insights from Pharmaceuticals.” Journal of Marketing, 67 (2003), 82102.CrossRefGoogle Scholar
U.S. Securities and Exchange Commission. Study of the Sarbanes-Oxley Act of 2002 Section 404 Internal Control over Financial Reporting Requirements (2009).Google Scholar
Vismara, S.; Paleari, S.; and Ritter, J. R.. “Europe’s Second Markets for Small Companies.” European Financial Management, 18 (2012), 352388.Google Scholar
Weild, D. “How to Revive Small-Cap IPOs.” Wall Street Journal (Oct. 27, 2011), A17.Google Scholar
Weild, D., and Kim, E.. “Why Are IPOs in the ICU?” Grant Thornton LLP White Paper (2008).Google Scholar
Weild, D., and Kim, E.. “A Wake-Up Call for America.” Grant Thornton LLP White Paper (2009).Google Scholar
Womack, K. L. “Do Brokerage Analysts’ Recommendations Have Investment Value?Journal of Finance, 51 (1996), 137167.CrossRefGoogle Scholar
Yung, C.; Çolak, G.; and Wang, W.. “Cycles in the IPO Market.” Journal of Financial Economics, 89 (2008), 192208.CrossRefGoogle Scholar
Zweig, J. “The Demise of the IPO Market—and Ideas on How to Revive It.” Wall Street Journal (June 25, 2010), C1.Google Scholar
Supplementary material: PDF

Gao et al. supplementary material

Appendix

Download Gao et al. supplementary material(PDF)
PDF 100.4 KB