A firm’s initial public offering (IPO) generates negative externalities for industry competitors. To mitigate this threat, incumbent firms manage their earnings downwards, issue more negative management forecasts, and use a more negative disclosure tone when their industry peers file for an IPO. Negative accruals reverse when the threat subsides.
Incumbents manage earnings more aggressively when costs are small and benefits are large, and when they follow negative disclosures of industry leading incumbents. Such strategic disclosure lowers incumbent firm valuation multiples and associates with more negative IPO firm media sentiment. IPO firms obtain lower offer prices, raise less capital, and are more likely to withdraw from the offering. They also invest less, hoard more cash, and experience lower profitability post IPO, while incumbents experience higher profitability and market share growth. Our results highlight the role of strategic reporting on product market competition and identify a new cost of going public.
We examine the role of corporate taxation and institutional quality in aligning privately optimal investments with those that are socially optimal. We...
For decades and decades, Delaware has been the undisputed leader in the market for corporate law. And yet, it is now clear that Delaware’s superiority...
Firms have inefficiently low incentives to innovate when other firms benefit from their inventions and the innovating firm therefore does not capture...