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http://hdl.handle.net/10419/25405
  
Title:IPOs cycle and investment in high-tech industries PDF Logo
Authors:Bouis, Romain
Issue Date:2003
Series/Report no.:CFS Working Paper 2003/47
Abstract: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.
Subjects:IPO
divergence of opinion
real option
venture capitalism
stock market and high-tech investment
JEL:D92
G10
G24
G31
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-10511
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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