The Impact of Strategic Investment Choices on Post-Issue Operating Performance and Survival of US IPO Firms

Authors


  • They would like to thank Thomas Whalen, seminar participants at the 2005 European Financial Management Association Meetings, an anonymous JBFA referee, and the editor (Andrew Stark) for helpful comments. Omesh Kini's research was partially supported by a summer research grant (2002) from the Robinson College of Business at Georgia State University.

* Address for correspondence: Omesh Kini, J. Mack Robinson College of Business, Georgia State University, Atlanta, GA 30303, USA.
e-mail: okini@gsu.edu

Abstract

Abstract:  We examine the impact of strategic investment choices at the time of the IPO on: (i) the post-issue operating performance and (ii) the likelihood of failure and time-to-failure of newly public US firms. Our post-issue operating performance analysis uses various performance metrics, benchmarks, and expectation models. Overall, our evidence indicates that the extent of diversification and industry-adjusted capital expenditures intensity are generally positively related to changes in operating performance. We do not, however, document a consistent relation between industry-adjusted R&D expenditures and changes in operating performance. The results from our survival analysis suggest that pre-issue managerial commitment to R&D spending and developing diversified product lines enhance the ability of IPO issuing firms to remain viable for longer periods of time. Our study highlights the impact of various managerial investment decisions on the subsequent performance of newly public firms.

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