The Life Cycle of Initial Public Offering Firms

Abstract

This study uses an integrated and comprehensive approach to study the evolution of IPO issuing firms to the three basic post‐IPO states: survive as an independent firm, get acquired, or fail. We develop multinomial logit models that utilize information available at or prior to the IPO to predict the probability of subsequent transition to the three post‐IPO states. We find that lower risk, larger firm size, higher investment banker prestige, higher pre‐IPO operating performance, and higher industry R&D intensity increase the probability of survival relative to failure. We also find that higher firm size, higher industry R&D intensity, and industry concentration increase the probability of survival relative to being acquired. Finally, lower risk and higher investment banker prestige increase the probability of being acquired relative to failure. Overall, we identify several factors that influence the probability of subsequent transition to one of the three basic post‐IPO states.