Why Does an IPO Affect Rival Firms?

Matthew Spiegel and Heather Tookes

The Review of Financial Studies, 2020, vol. 33, issue 7, 3205-3249

Abstract: IPO firms’ rivals tend to experience performance declines following an IPO in the industry. Why? We estimate a dynamic structural oligopoly model to distinguish between alternative theories that can explain an industry’s evolution post-IPO. We find that most changes in rivals’ performance are due to industry trends that also drive IPOs. However, we also find some “competitive” IPOs where the IPO enhances the IPO firm’s performance at the expense of competitors. These findings help reconcile prior evidence of average performance reductions of both IPO firms and their rivals with well-known cases in which firms have benefited from going public. (JEL G30, G32)Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2020
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