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Different strokes: IPO risk factors, investor valuation, and firm survival

Published online by Cambridge University Press:  28 August 2014

Fariss-terry Mousa ,
Paul E. Bierly III  and
William J Wales
Fariss-terry Mousa*
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
Paul E. Bierly III
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
William J Wales
Affiliation:
Department of Management, James Madison University, Harrisonburg, VA, USA
*
Corresponding author: mousafx@jmu.edu
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Abstract

As a firm prepares for initial public offering, the Securities and Exchange Commission mandates that top managers must record risks to their firms’ survival or performance in the prospectus. More specifically we propose that external risk factors (market risks, legal risks, and government regulations risks) have a more negative effect on investor optimism and initial public offering valuation, while internal risk factors (management risks, operational risks, technical risks) have a more negative effect on post-initial public offering long-term firm survival. This study illustrates a major gap between risk factors that investors initially focus on and the true determinants of long-term success.

Keywords

firm strategyinvestor valuationlong-term firm survivalIPOhigh-tech firms
Type
Research Article
Information
Journal of Management & Organization , Volume 20 , Issue 3 , May 2014 , pp. 348 - 364
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2014 

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