IPO failure revision_02_20_2022_SSRN.pdf (978.54 kB)
On modeling IPO failure risk
journal contribution
posted on 2023-06-10, 02:40 authored by Gonal ColakGonal Colak, Mengchuan Fu, Iftekhar HasanThis 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.
History
Publication status
- Published
File Version
- Accepted version
Journal
Economic ModellingISSN
0264-9993Publisher
ElsevierExternal DOI
Volume
109Page range
1-19Article number
a105790Department affiliated with
- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2022-02-22First Open Access (FOA) Date
2023-02-05First Compliant Deposit (FCD) Date
2022-02-21Usage metrics
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