On modeling IPO failure risk

Colak, Gonul, Fu, Mengchuan and Hasan, Iftekhar (2022) On modeling IPO failure risk. Economic Modelling, 109. a105790 1-19. ISSN 0264-9993

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Abstract

This paper offers a novel framework, combining firm operational risk, IPO pricing risk, and market risk, to model IPO failure risk. By analyzing nearly a thousand variables, we observe that prior IPO failure risk models have suffered from a major missing-variable problem. Evidence reveals several key new firm-level determinants, e.g., the volatility operating performance, the size of its accounts payable, pretax income to common equity, total short-term debt, and a few macroeconomic variables such as treasury bill rate, and book-to-market of the DJIA index. These findings have major economic implications. The total value loss from not predicting the imminent failure of an IPO is significantly lower with this proposed model compared to other established models. The IPO investors could have saved around $18billion over the period between 1994 and 2016 by using this model.

Item Type: Article
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 22 Feb 2022 07:59
Last Modified: 22 Feb 2022 08:00
URI: http://sro.sussex.ac.uk/id/eprint/104482

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