The impact of pre-IPO performance pressure on research and development investments of an IPO firm: Evidence from China

Mingshan Zhou, Dacheng Xiao, Kam C. Chan and Hung-Gay Fung

Economic Modelling, 2019, vol. 78, issue C, 40-46

Abstract: We derive a simple model to show that pre-IPO performance pressure has a negative impact on an IPO applicant's research and development investments. The findings from the Chinese IPOs in the growth enterprise market (GEM) are consistent with the model's predictions. Further analysis suggests that when the time to listing is shorter, the adverse impact of performance pressure on R&D investments is stronger. While the objective of the GEM is to encourage innovative firms to raise new capital via IPOs to enhance their innovations in the future, the cutting of R&D investments to enhance the probability of receiving IPO approval defeats the purpose. Our findings suggest that it may be useful for a regulatory authority to consider multi-dimensional criteria in IPO approvals for GEMs instead of heavily relying on the pre-IPO performance to sustain a healthy IPO market and innovation activities of a country.

Keywords: IPO; Performance pressure; Time to listing; Growth and enterprise market (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:78:y:2019:i:c:p:40-46

DOI: 10.1016/j.econmod.2018.09.013

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