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Industry clustering of initial public offerings

Author

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  • Bharat A. Jain

    (College of Business and Economics, Towson University, Towson, MD 21252, USA)

  • Omesh Kini

    (Robinson College of Business, Georgia State University, Atlanta, GA 30303, USA)

Abstract

Extant empirical evidence has documented both a temporal variation in the number of initial public offerings (IPOs) and an industry clustering effect in these offerings. This article attempts to provide insights into this phenomenon by: (i) identifying industry conditions that influence IPO clustering, (ii) analyzing differences in characteristics of clustered versus non-clustered IPOs, and (iii) studying the impact of IPO clustering on long-run operating performance. We find that IPO clustering is more likely to occur in high-growth fragmented industries that are characterized by strong investment opportunities, favorable investor sentiment, and which require high levels of investments in R&D. Further, we document a negative relation between post-IPO operating performance and whether the IPO firm goes public in its industry cluster period. We conclude that the relatively poor post-IPO operating performance of firms that go public in industry cluster periods likely reflects industry overinvestment arising from too many firms within that industry chasing the same investment opportunities. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Bharat A. Jain & Omesh Kini, 2006. "Industry clustering of initial public offerings," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1-20.
    • Handle: RePEc:wly:mgtdec:v:27:y:2006:i:1:p:1-20
    DOI: 10.1002/mde.1245
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    References listed on IDEAS

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    Cited by:

    1. Jerry Cao, 2013. "Private equity, RLBOs and IPO performance," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 18, pages 375-399, Edward Elgar Publishing.
    2. Theodore A. Khoury & Marc Junkunc & David L. Deeds, 2013. "The Social Construction of Legitimacy through Signaling Social Capital: Exploring the Conditional Value of Alliances and Underwriters at IPO," Entrepreneurship Theory and Practice, , vol. 37(3), pages 569-601, May.
    3. Roy Cerqueti & Catherine Deffains‐Crapsky & Saverio Storani, 2023. "Green finance instruments: Exploring minibonds issuance in Italy," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1965-1986, July.
    4. Chua, Ansley & Nasser, Tareque, 2016. "Insider sales in IPOs: Consequences of liquidity needs," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 1-17.
    5. Colaco, Hugh M.J. & Ghosh, Chinmoy & Knopf, John D. & Teall, John L., 2009. "IPOs, clustering, indirect learning and filing independently," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2070-2079, November.
    6. Subadar Agathee, Ushad & Brooks, Chris & Sannassee, Raja Vinesh, 2012. "Hot and cold IPO markets: The case of the Stock Exchange of Mauritius," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 168-192.
    7. Harris, Oneil, 2018. "The impact of industrial districts on the pricing of IPOs," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 274-285.
    8. Colombo, Massimo G. & Meoli, Michele & Vismara, Silvio, 2019. "Signaling in science-based IPOs: The combined effect of affiliation with prestigious universities, underwriters, and venture capitalists," Journal of Business Venturing, Elsevier, vol. 34(1), pages 141-177.
    9. Abe de Jong & Wilco Legierse, 2022. "What causes hot markets for equity IPOs? An analysis of initial public offerings in the Netherlands, 1876–2015 [Market timing and capital structure]," European Review of Economic History, European Historical Economics Society, vol. 26(2), pages 208-233.

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