IPOs and Entrepreneurial Firms
By Giancarlo Giudici, School of Management Politecnico di Milano, Italy, giancarlo.giudici@polimi.it | Silvio Vismara, Department of Management, University of Bergamo, Italy, silvio.vismara@unibg.it
Abstract
The listing on a stock exchange is a paramount milestone in the life cycle of an enterprise. By taking their company public on a stock market through an Initial Public Offering (IPO), entrepreneurs may target several benefits (e.g., raising money, facilitating acquisitions, offering valuable stock ownership plans to employees) but their firms will bear new costs and requirements. In this work we review the academic literature on IPOs of entrepreneurial firms, focusing on five main topics: (i) the going public decision, (ii) pricing and valuation, (iii) the role of intermediaries and underwriters in the listing process, (iv) the performance of IPO-firms in the short and long run, and (v) market cycles in the IPO industry.
IPOs and Entrepreneurial Firms
IPOs and Entrepreneurial Firms analyzes the most recent literature on IPOs of entrepreneurial firms – young firms based on intangible rather than physical assets where the founder of the firm often serves as the key inventor and the CEO. After a brief introduction, section 2 reviews the literature on the reasons why companies go public. A trade-off between direct and indirect costs and benefits is considered, as well as entrepreneurial strategic objectives, comprising engaging more easily in acquisitions, signaling the quality of the company, increasing its reputation. Section 3 deals with alternative methodologies to price IPO shares, including cash flow discounting and peer comparison. Section 4 describes the role of intermediaries in the placement of IPO shares. Section 5 focuses on the short-run (underpricing) and long-run performance of IPO companies. Section 6 discusses the cyclical dynamics of the IPO flow on the market. Finally, Section 7 identifies future research directions at the cross-road between finance and entrepreneurship and comparing IPOs with the new digital finance.
