The IPO window of opportunity for digital product and service firms
- 263 Downloads
Recognizing the window of opportunity to go public for digital product and service (DPS) firms is especially critical because they have high fixed-to-variable cost (FCVC) ratios and winner-take-all industry competition. Too early and their very risky nature means a steep discount to their stock. Too late and they may not be able to sell stock or it may be too late to take advantage of a new product or service. We find that the size of the run-up in stock price at the IPO is higher (lower) for DPS firms the earlier (later) they go public and significantly more than for traditional firms. We also find that the DPS firms that go public earlier or later outside the window of opportunity are more likely to fail. This result is also stronger for DPS firms than for traditional firms.
KeywordsDigital product Digital service Digital technology Financing strategy Initial public offering IPO timing
JEL classificationG24 – Investment Banking
- Adams, R. (2011). Myspace cuts 47% of workforce. The Wall Street Journal. http://online.wsj.com/article/SB10001424052748703791904576075892399066126.html. Accessed 21 July 2011.
- Beal, D. (2005). SAS code to select the best multiple linear regression model for multivariable data using information criteria. Science Applications International Corporation, SA01_05.Google Scholar
- Katz, M., & Shapiro, C. (1985). Network externalities, competition and compatibility. American Economic Review, 75(3), 424–440.Google Scholar
- Rayport, J. F., & Sviokla, J. J. (1995). Exploiting the virtual value chain. Harvard Business Review, 75–85.Google Scholar
- Schilling, M. (1998). Technological lockout: an integrative model of the economic and strategic factors driving technology success and failure. Academy of Management Review, 98, 267–284.Google Scholar
- Yamamoto, H., Okada, I., Kobayashi, N., & Ohta, T. (2002). The information channel effect in the winner-take-all: a multi-agent simulation. In Proceedings of the 6th World Multi-Conference on Systemics, Cybernetics and Informatics (SCI 2002), 2, 510–513.Google Scholar