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The New Game in Town: Competitive Effects of IPOs


  • Hung-Chia Hsu is with the University of Wisconsin Milwaukee. Adam V. Reed is with the University of North Carolina at Chapel Hill. Jörg Rocholl is with ESMT European School of Management and Technology. The authors thank Ken Ahern, Diane Del Guercio, Paolo Fulghieri, Eitan Goldman, David Goldreich, Jarrad Harford, Cam Harvey (the Editor), Matthias Kahl, Adam Kolasinski, Jennifer Koski, Wayne Mikkelson, Harold Mulherin, Lars-Hendrik Röller, Maya Waisman, an anonymous Associate Editor, an anonymous referee, and seminar participants at the University of North Carolina, University of Oregon, University of Washington, the 2007 FMA Meetings in Orlando, 2008 EFA Meetings in Athens, Fifth Annual Conference on Corporate Finance at Washington University in St. Louis, and 2009 AFA Meetings in San Francisco.


We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO-related competitive advantages through the loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross-section of underperformance as well as survival probabilities for competing firms.