Chapter 8: Underwriter reputation, bookbuilding and IPO duration
Consider the sample of firms that filed for an initial public offering (IPO) in the United States (US) in August 2000, at the end of the Internet bubble. Of the 26 firms that filed to go public that month, 14 (or 54 percent) eventually withdrew. Contrast that with a withdrawal rate of only 24 percent for the 1986–2009 period. While the greater riskiness of firms going public during the Internet bubble may partly account for the greater withdrawal rate, the above example also reflects the inability of underwriters (assigned with taking a firm public) to predict future market conditions. Since only 10 percent of firms that withdraw are successful in going public a second time (Dunbar and Foerster, 2008), the IPO timing decision is important. Given the inability to forecast market conditions, Colaco and Hegde (2012) argue that a firm and its underwriter should prefer to spend less time in registration. Also, after filing their prospectus with the securities regulators that reveal some sensitive information about their business plans to the public, new firms face serious competitive threats that could erode growth prospects for their new products and services.
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