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| Author: | Chod, J. Lyandres, E. |
| Title: | Strategic IPOs and product market competition |
| Journal: | Journal of Financial Economics
2011 : APR, VOL. 100:1, p. 45-67 |
| Index terms: | initial public offerings risk aversion products markets competition demand uncertainty models |
| Language: | eng |
| Abstract: | This study explores firms' incentives to go public in the presence of product market competition. Public (here as: pbl.) firms' owners bear higher profit variability than owners of private (as: prv.) firms due to their greater ability to diversify idiosyncratic (here as: id-tic.) risk in the capital market. Hence, pbl. firms adopt riskier and more aggressive output market strategies than prv. firms, improving the competitive position of the former compared to the latter. This strategic benefit of being pbl., and thus, the proportion of pbl. firms in an industry, is shown to be positively related to the degree of competitive interaction amongst firms in the output market, to demand uncertainty, and to the id-tic. portion of this uncertainty. The model's predictions are tested and empirical support is found for most of them. |
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