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Technological Disruptiveness and the Evolution of IPOs and Sell-Outs

Author

Listed:
  • Donald E. Bowen III

    (Virginia Tech - Department of Finance, Insurance, and Business Law)

  • Laurent Frésard

    (Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute)

  • Gerard Hoberg

    (University of Southern California - Marshall School of Business - Finance and Business Economics Department)

Abstract

We show that the recent decline in IPOs on U.S. markets is related to changes in the technological disruptiveness of startups, which we measure using textual analysis of patents from 1930 to 2010. We focus on VC-backed startups and show that those with ex-ante disruptive technologies are more likely to exit via IPO and less likely to exit via sell-out. This is consistent with IPOs being favored by firms with the potential to carve out independent market positions with strong defenses against rivals. We document an economy-wide trend of declining technological disruptiveness since World War II that accelerated since the late 1990s. This trend predicts fewer IPOs and more sell-outs, and we find that roughly 20% of the recent dearth of IPOs, and 49% of the surge in sell-outs, can be attributed to changes in firms' technological characteristics.

Suggested Citation

  • Donald E. Bowen III & Laurent Frésard & Gerard Hoberg, 2019. "Technological Disruptiveness and the Evolution of IPOs and Sell-Outs," Swiss Finance Institute Research Paper Series 19-22, Swiss Finance Institute, revised Apr 2019.
    • Handle: RePEc:chf:rpseri:rp1922
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    More about this item

    Keywords

    Initial Public Offerings (IPOs); Acquisitions; Sell-Outs; Technology; Disruptiveness; Venture Capital;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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