Industry clustering of initial public offerings

Bharat A. Jain and Omesh Kini
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Bharat A. Jain: College of Business and Economics, Towson University, Towson, MD 21252, USA, Postal: College of Business and Economics, Towson University, Towson, MD 21252, USA
Omesh Kini: Robinson College of Business, Georgia State University, Atlanta, GA 30303, USA, Postal: Robinson College of Business, Georgia State University, Atlanta, GA 30303, USA

Managerial and Decision Economics, 2006, vol. 27, issue 1, 1-20

Abstract: Extant empirical evidence has documented both a temporal variation in the number of initial public offerings (IPOs) and an industry clustering effect in these offerings. This article attempts to provide insights into this phenomenon by: (i) identifying industry conditions that influence IPO clustering, (ii) analyzing differences in characteristics of clustered versus non-clustered IPOs, and (iii) studying the impact of IPO clustering on long-run operating performance. We find that IPO clustering is more likely to occur in high-growth fragmented industries that are characterized by strong investment opportunities, favorable investor sentiment, and which require high levels of investments in R&D. Further, we document a negative relation between post-IPO operating performance and whether the IPO firm goes public in its industry cluster period. We conclude that the relatively poor post-IPO operating performance of firms that go public in industry cluster periods likely reflects industry overinvestment arising from too many firms within that industry chasing the same investment opportunities. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:27:y:2006:i:1:p:1-20

DOI: 10.1002/mde.1245

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