Competitive Effects of IPOS: Evidence from Chinese Listing Suspensions

Abstract

Theory suggests that initial public offerings (IPOs) can adversely impact listed firms, both directly by increasing intra-industry competition, and indirectly by completing related asset market spaces. However, the endogeneity of individual IPO activity hinders testing these channels. This paper examines listing suspensions in China in a panel specification that accounts for macroeconomic and financial conditions, isolating the firm-level IPO impact. We measure the competitive impact of listing suspensions through the value share of postponed firms in the IPO queue in their industry, and asset-space competition by firms' historical covariance with a synthetic portfolio of listed firms with the IPO queue industry mix at the time of suspension. Our results support the predicted IPO effects through both channels. We also document heterogeneity in IPO effects. Stronger firms-measured through a variety of proxies-benefit less from the suspension news. These results are robust to a battery of sensitivity tests.

IPO suspension and pricing: Evidence from China

“…Without access to the capital market, suspension-affected firms have to slow down, which will limit their competitiveness over peer firms. Facing less competition, peers of suspension-affected IPO firms have better market and accounting performance (Packer and Spiegel, 2023), manage their working capital more effectively and reduce aggressive M&A activities (Jia et al, 2021). The benefit of IPO suspension for competitors is greater when they are under greater competitive pressure, face more severe ex-ante threats from the suspended rival firm, and are more financially constrained (Jia et al, 2021).…”