Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-23T21:06:49.743Z Has data issue: false hasContentIssue false
  • English
  • Français

Different strokes: IPO risk factors, investor valuation, and firm survival

Published online by Cambridge University Press:  28 August 2014

Fariss-terry Mousa ,
Paul E. Bierly III  and
William J Wales
Fariss-terry Mousa*
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
Paul E. Bierly III
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
William J Wales
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
*
Corresponding author: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

As a firm prepares for initial public offering, the Securities and Exchange Commission mandates that top managers must record risks to their firms’ survival or performance in the prospectus. More specifically we propose that external risk factors (market risks, legal risks, and government regulations risks) have a more negative effect on investor optimism and initial public offering valuation, while internal risk factors (management risks, operational risks, technical risks) have a more negative effect on post-initial public offering long-term firm survival. This study illustrates a major gap between risk factors that investors initially focus on and the true determinants of long-term success.

Keywords

firm strategyinvestor valuationlong-term firm survivalIPOhigh-tech firms
Type
Research Article
Information
Journal of Management & Organization , Volume 20 , Issue 3 , May 2014 , pp. 348 - 364
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abdou, K., Dicle, M. F. (2007). Do risk factors matter in IPO valuation? Journal of Financial Regulation and Compliance, 15(1), 63–89.Google Scholar
Andrews, A. O., Welbourne, T. M. (2000). The people/performance balance in IPO firms: The effect of the Chief Executive Officer's financial orientation. Entrepreneurship Theory and Practice, 25, 93–106.Google Scholar
Arthurs, J. D., Busenitz, L. W. (2006). Dynamic capabilities and venture performance: The effects of venture capitalists. Journal of Business Venturing, 21, 195–215.Google Scholar
Arthurs, J. D., Busenitz, L. W., Hoskisson, R. E., Johnson, R. A. (2009). Firm-specific human capital and governance in IPO firms: Addressing agency and resource dependence concerns. Entrepreneurship Theory and Practice, 33(4), 845–865.Google Scholar
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.CrossRefGoogle Scholar
Beatty, R. P. (1989). Auditor reputation and the pricing of initial public offerings. Accounting Review, 64, 693–709.Google Scholar
Beatty, R. P., Zajac, E. J. (1994). Managerial incentives, monitoring, and risk bearing: A study of executive compensation, ownership, and board structure in initial public offerings. Administrative Science Quarterly, 39, 313–335.Google Scholar
Bhabra, H. S., Pettway, R. H. (2003). IPO prospectus information and subsequent performance. Financial Review, 38, 369–397.Google Scholar
Brown, R. S. (2012). The role of legitimacy for the survival of new firms. Journal of Management & Organization, 18(3), 412–427.Google Scholar
Busenitz, L. W., Fiet, J. O., Moesel, D. D. (2005). Signaling in venture capitalist – New venture team funding decisions: Does it indicate long-term venture outcomes? Entrepreneurship Theory and Practice, 1–12.Google Scholar
Cabrera-Suárez, M. K., Martín-Santana, J. D. (2013). Top management teams and performance in non-listed family firms. Journal of Management & Organization, 19(4), 405–423.Google Scholar
Carpenter, M. A., Pollock, T. G., Leary, T. G. (2003). Testing a model of reasoned risk-taking: Governance, the experience of principals and agents, and global strategy in high-technology IPO firms. Strategic Management Journal, 24, 803–820.Google Scholar
Carpenter, R. E., Petersen, B. C. (2002). Capital market imperfections, high-tech investment, and new equity financing. The Economic Journal, 112, F54–F72.Google Scholar
Certo, S. T. (2003). Influencing initial public offering investors with prestige: signaling with board structures. Academy of Management Review, 28(3), 432–446.Google Scholar
Certo, S. T., Covin, J. G., Daily, C. M., Dalton, D. R. (2001). Wealth and the effects of founder management among IPO-stage new ventures. Strategic Management Journal, 22, 641–658.Google Scholar
Certo, S. T., Holcomb, T. R., Holmes, R. M. (2009). IPO research in management and entrepreneurship: Moving the agenda forward. Journal of Management, 35(6), 1340–1378.Google Scholar
Cohen, B. D., Dean, T. J. (2005). Information asymmetry and investor valuation of IPOs: Top management team legitimacy as a capital market signal. Strategic Management Journal, 26, 683–690.CrossRefGoogle Scholar
Coombs, J. E., Bierly, P. E., Gallagher, S. (2012). The impact of different forms of IPO firm legitimacy on the choice of alliance governance structure. Journal of Management & Organization, 18(4), 516–536.Google Scholar
Corwin, S. A., Schultz, P. (2005). The role of IPO underwriting syndicates: Pricing, information production, and underwriter competition. The Journal of Finance, 60(1), 443–486.Google Scholar
Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society, 34(2), 187–220.Google Scholar
Daily, C. M., Certo, S. T., Dalton, D. R. (2005). Investment Bankers and IPO pricing: Does prospectus information matter? Journal of Business Venturing, 20, 93–111.Google Scholar
Deeds, D. L., DeCarolis, D., Coombs, J. (2000). Dynamic capabilities and new product development in high technology ventures: An empirical analysis of new biotechnology firms. Journal of Business Venturing, 15, 211–229.Google Scholar
Delerue, H. (2004). Relational risks perception in European biotechnology alliances: The effect of contextual factors. European Management Journal, 22(5), 546–556.Google Scholar
Díez-Vial, I., Fernández-Olmos, M. (2013). Internal resources, local externalities and export performance: An application in the Iberian ham cluster in Spain. Journal of Management & Organization, 19(4), 478–497.Google Scholar
Downes, D. H., Heinkel, R. (1982). Signaling and the valuation of unseasoned new issues. Journal of Finance, 37(1), 1–10.CrossRefGoogle Scholar
Eisenhardt, K. M., Martin, J. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21, 1105–1121.Google Scholar
Espenlaub, S. (1999). Discussion of the life cycle of initial public offering firms. Journal of Business Finance & Accounting, 26, 1309–1317.Google Scholar
Feltham, G. A., Hughes, J. S., Simunic, D. A. (1991). Empirical assessment of the impact of auditor quality on the valuation of new issues. Journal of Accounting & Economics, 14, 375–399.Google Scholar
Finkle, T. A. (1998). The relationship between boards of directors and initial public offerings in the biotechnology industry. Entrepreneurship Theory and Practice, 22, 5–29.Google Scholar
Fischer, H. M., Pollock, T. G. (2004). Effects of social capital and power on surviving transformational change: The Case of initial public offerings. Academy of Management Journal, 47, 463–481.Google Scholar
Hasan, I., Kobeissi, N., Wang, H. (2011). Global equity offerings, corporate valuation, and subsequent international diversification. Strategic Management Journal, 32, 787–796.Google Scholar
Hawawini, G., Subramanian, V., Verdin, P. (2003). Is performance driven by industry-or firm-specific factors? A new look at the evidence. Strategic Management Journal, 24(1), 1–16.Google Scholar
Hensler, D. A., Rutherford, R. C., Springer, R. C. (1997). The survival of initial public offerings in the aftermarket. Journal of Financial Research, 20(1), 93–110.Google Scholar
Husick, G. C., Arrington, J. M. (1998). The initial public offering: A practical guide for executives. New York, NY: Bowne & Co.Google Scholar
Jackson, E. M., Hambrick, D. (2003). Prestigious executives, directors and backers of IPOs: Enduring advantages or fading gloss? Academy of Management Best Paper Proceedings, G1–G6.Google Scholar
Jain, B. A., Jayaraman, N., Kini, O. (2008). The path-to-profitability of internet IPO firms. Journal of Business Venturing, 23, 165–194.Google Scholar
Jain, B. A., Kini, O. (1999). The life cycle of initial public offering firms. Journal of Business Finance & Accounting, 26, 1280–1307.Google Scholar
Jain, B. A., Kini, O. (2000). Does the presence of venture capitalists improve the survival profile of IPO firms? Journal of Business Finance & Accounting, 27, 1139–1176.Google Scholar
Janney, J. J., Folta, T. B. (2003). Signaling through private equity placements and its impact on the valuation of biotechnology firms. Journal of Business Venturing, 18, 361–380.Google Scholar
Kim, M., Ritter, J. R. (1999). Valuing IPOs. Journal of Financial Economics, 53(3), 409–437.Google Scholar
Kor, Y. Y., Mahoney, J. T., Watson, S. (2008). The effects of demand, competitive, and technological uncertainty on board monitoring and institutional ownership of IPO firms. Journal of Management and Governance, 12, 239–259.Google Scholar
Lee, T., Chu, W. (2013). How entrepreneurial orientation, environmental dynamism, and rareness influence firm performance. Journal of Management & Organization, 19(2), 167–187.Google Scholar
Leone, A. J., Rock, S., Willenborg, M. (2007). Disclosure of intended use of proceeds and underpricing in initial public offerings. Journal of Accounting Research, 45(1), 111–153.Google Scholar
Lester, R. H., Certo, S. T., Dalton, C. M., Dalton, D. R., Cannella, A. J. (2006). Initial public offering investor valuations: An examination of top management team prestige and environmental uncertainty. Journal of Small Business Management, 44(1), 1–26.Google Scholar
Loughran, T., Ritter, J. (2004). Why gas IPO underpricing changed over time? Financial Management, 33(3), 5–37.Google Scholar
Lowry, M., Shu, S. (2002). Litigation risk and IPO underpricing. Journal of Financial Economics, 65, 309–335.Google Scholar
Martens, M. L., Jennings, J. E., Jennings, P. D. (2007). Do the stories they tell get them the money they need? The role of entrepreneurial narratives in resource acquisition. Academy of Management Journal, 50(5), 1107–1132.Google Scholar
McGahan, A. M., Porter, M. E. (1997). How much does industry matter, really? Strategic Management Journal, Summer Special Issue, 18, 15–30.Google Scholar
Mousa, F. T., Wales, W. (2012). Founder effectiveness in leveraging entrepreneurial orientation. Management Decision, 50(2), 305–324.Google Scholar
Nelson, T. (2003). The persistence of founder influence: Management, ownership, and performance effects at initial public offering. Strategic Management Journal, 24, 707–724.CrossRefGoogle Scholar
Perez, R. C. (1984). Inside investment banking. New York, NY: Praeger.Google Scholar
Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14, 179–191.Google Scholar
Porter, M. E. (1980). Competitive strategy. New York, NY: Free Press.Google Scholar
Rasheed, A. M., Datta, D. K., Chinta, R. R. (1997). Determinants of price premiums: A study of initial public offerings in the medical diagnostics and devices industry. Journal of Small Business Management, 35(4), 11–23.Google Scholar
Reuer, J., Shen, J. (2003). The extended merger and acquisition process: Understanding the role of IPOs in corporate strategy. European Management Journal, 21(2), 192–198.Google Scholar
Reuer, J., Tong, T. W. (2010). Discovering valuable growth opportunities: An analysis of equity alliances with IPO firms. Organization Science, 21(1), 202–215.Google Scholar
Ritter, J. R., Welch, I. (2002). A review of IPO activity, pricing, and allocations. Journal of Finance, 57, 1795–1828.Google Scholar
Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15, 187–212.CrossRefGoogle Scholar
Roquebert, J. A., Phillips, R. L., Westfall, P. A. (1996). Markets vs. management: What ‘drives’ profitability? Strategic Management Journal, 17, 653–664.Google Scholar
Rumelt, R. (1991). How much does industry matter? Strategic Management Journal, 12(3), 167–185.Google Scholar
Schmalensee, R. (1985). Do markets differ much? American Economic Review, 75, 341–351.Google Scholar
Short, J. C., Ketchen, D. J., Palmer, T. B., Hult, G. T. (2007). Firm, strategic group, and industry influences on performance. Strategic Management Journal, 28, 147–167.CrossRefGoogle Scholar
Short, J. C., McKelvie, A., Ketchen, D. J., Chandler, G. N. (2009). Firm and industry effects on firm performance: A generalization and extension for new ventures. Strategic Entrepreneurship Journal, 3(1), 47–65.Google Scholar
Spence, A. M. (1974). Competitive and optimal responses to signals: An analysis of efficiency and distribution. Journal of Economic Theory, 7, 296–315.Google Scholar
Teece, D. J., Pisano, G., Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.3.0.CO;2-Z>CrossRefGoogle Scholar
Welbourne, T. M., Andrews, A. O. (1996). Predicting the performance of initial public offerings: Should human resource management be in the equation? Academy of Management Journal, 39(4), 891–919.CrossRefGoogle Scholar
Welbourne, T. M., Neck, H., Meyer, G. D. (2012). The entrepreneurial growth ceiling: Using people and innovation to mitigate risk and break through the growth ceiling in initial public offerings. Management Decision, 50(5), 778–796.Google Scholar
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171–180.CrossRefGoogle Scholar
Wilbon, A. D. (2002). Predicting survival of high-technology initial public offering firms. Journal of High Technology Management Research, 13, 127–141.Google Scholar
Zeune, G. D. (1993). Ducks in a row: Orchestrating the flawless stock offering. Corporate Cashflow, 14(2), 18–21.Google Scholar
Zimmerman, M., Zeitz, G. (2002). Beyond survival: Achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–432.Google Scholar