Long-term industry performance following IPOs

While firms are more likely to go public when the corresponding industry prospects are favorable, they may also serve as formidable threats to pull market share from the industry. In addition, if IPOs are timed when industry valuations are unusually high, there may be an aftermarket correction in the industry. We find that the corresponding industry rival portfolios experience unfavorable price performance on average over the 36-month period following an IPO. The dispersion in long-term industry effects following the IPOs can be partially explained by competitive effects and the timing of the IPO. The adverse industry effects are more pronounced when the IPOs are small, and when the IPO is the first in the industry within the last 2 years. Furthermore, the adverse industry effects are more pronounced when the IPOs are in regulated industries, and when prevailing industry multiples are relatively high at the time of the IPO. Overall, these characteristics document the influence of competitive effects and timing signals on industry effects associated with IPOs. (C) 2006 Published by Board of Trustees of the University of Illinois.