IPOs cycle and investment in high-tech industries

Arbeitspapier

This paper analyses the effects of the Initial Public Offering (IPO) market on real investment decisions in emerging industries. We first propose a model of IPO timing based on divergence of opinion among investors and short-sale constraints. Using a real option approach, we show that firms are more likely to go public when the ratio of overvaluation over profits is high, that is after stock market run-ups. Because initial returns increase with the demand from optimistic investors at the time of the offer, the model provides an explanation for the observed positive causality between average initial returns and IPO volume. Second, we discuss the possibility of real overinvestment in high-tech industries. We claim that investing in the industry gives agents an option to sell the project on the stock market at an overvalued price enabling then the financing of positive NPV projects which would not be undertaken otherwise. It is shown that the IPO market can however also lead to overinvestment in new industries. Finally, we present some econometric results supporting the idea that funds committed to the financing of high-tech industries may respond positively to optimistic stock market valuations.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CFS Working Paper ; No. 2003/47

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
• Thema: IPO ; divergence of opinion ; real option ; venture capitalism ; stock market and high-tech investment ; Wertpapieremission ; Risikokapital ; Hochtechnologiesektor ; Schätzung ; Theorie ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bouis, Romain
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (wo): Frankfurt a. M.
• (wann): 2003

Weitere Informationen

• Handle: http://hdl.handle.net/10419/25405
• URN: urn:nbn:de:hebis:30-10511
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ