Initial Public Offerings of Young High-Growth Firms : Impact on and Key Drivers of Corporate Investment Strategies

Conducts an investigation of the influence ofinitial public offerings (IPOs) on the investment strategies of youngentrepreneurial firms, and the key drivers behind investment behavior. Researchis based on a database comprising young high-growth firms from the Internetarena in the United States, Germany, Italy, France, United Kingdom, and Asiafrom January 1996 to December 2000. Data consisted of 132 firms; information on IPOs was obtained from theSecurities Data Corporation, the NASDAQ, the Deutsche Boerse AG, and ReutersBusiness Briefing. Results support the argument that IPOs of young high-growthfirms lead to significant changes in former investment strategies, includingsignificant increases in the firms' propensity for mergers & acquisitions(M&A) activities post-IPO. Two different IPO effects are noted. First, achange in former investment behavior is more likely to occur if companies growthrough internal development; and second, acquirers pre-IPO keep their pre-IPOstrategy for external growth and significantly intensify their M&Aactivities post-IPO. Regression analyses show a positive relationship for M&A propensitypre-and post-IPO. Additionally, strategic investors appear to have arestrictive influence on a young firm's propensity to acquire other companies.A positive influence was also noted for top management team financialexperience on young firms' inclination to invest in a cooperative arrangement.It is clear that IPOs demonstrate a relevant, significant, and disruptiveeffect on the intensity and type of investment strategy selected by youngfirms. (NEE)