Local IPO waves, local shocks, and the going public decision

Abstract

Local IPO waves occur when firms from different industries, but located in the same area, go public in the same time period. We classify IPOs within industry IPO waves and within local IPO waves, and see that the sub‐samples of IPOs on the wave by industry only slightly overlap IPOs on the wave by region; IPO waves by region are similar to IPO waves by industry: for example, early‐in‐the‐wave IPOs are equally more underpriced than late‐in‐the‐wave IPOs. We also find the listing decision is sensitive not only to high valuations of firms in the same industry but also to high valuations of firms in the same region but in different industries. Our results do not support information spillover as a driver of local IPO waves, as the post‐IPO fall in profitability is more pronounced for on‐the‐wave than for off‐the‐wave IPO firms and the IPO price revision is not sensitive to the information revealed by concurrent IPOs. Using a difference‐in‐difference approach, we show that regions hosting IPO waves experience a parallel increase in several economic ratios post the wave. Overall, our results provide support to local IPO waves originating in positive local shocks.