By Michelle Lowry, LeBow College of Business, Drexel University, USA, firstname.lastname@example.org | Roni Michaely, Johnson School of Management, Cornell Tech, Cornell University, USA, email@example.com | Ekaterina Volkova, University of Melbourne, Australia, firstname.lastname@example.org
The purpose of this monograph is to provide an overview of the IPO literature since 2000. The fewer numbers of companies going public in recent years has raised many questions regarding the IPO process, in both academic and regulatory circles. As we all strive to understand these changes in the market, it is especially important to understand the dynamics underlying the IPO process. If the process of going public is too costly or the IPO mechanism is plagued by too many conflicts of interest among the various intermediaries, then private companies may rationally choose other methods of raising capital. In a related vein, it is imperative that new regulations not be based on research focusing solely on large, more mature firms. Newly public firms have unique characteristics, and an increased understanding of such issues will contribute positively to well-functioning public markets and further growth of the entrepreneurial sector. We also provide a detailed guide to researchers on how to obtain a research-quality sample of IPOs, from standard data sources. Related to this, we tabulate important corrections to these standard data sources.
Transitioning from private to public status is a watershed event in the life of any firm. For most firms and managers, the process of conducting an Initial Public Offering (IPO) is something they will only go through once. As such, there exists much uncertainty over the process, starting with the decision of whether to go public and including issues such as when to go public, who to select as advisors, how to price the offering and how to structure the governance of the newly public firm. A broad set of academic literature has studied all these issues, and the purpose of Initial Public Offerings is to review the existing evidence and suggest areas where our understanding is less complete and would benefit from further research.
Section 1 reviews the reasons that firms go public. Having established firms’ basic motivations for public listing, Section 2 provides an empirical overview of the key aspects of the IPO process. Section 3 provides a detailed discussion of the institutional details surrounding the IPO process, which are crucial to understanding this market. Section 4 reviews the rich literature on the pricing of IPOs, and the role of the underwriter in the process. Section 5 discusses the role of intermediaries throughout the IPO process. Sections 6 and 7 review the literature and evidence on post-IPO returns and cycles in the IPO market, respectively. Finally, Section 8 discusses the burgeoning literature on the governance of newly public firms and Section 9 concludes.