The Lifecycle of Typical IPOs: The Characteristics of Surviving Firms

Abstract

This paper explores the dynamics of firm evolution by analysing the timing and sequencing of a firm's innovation, investment, financing and payout decisions following an IPO. We apply real options theory to analyse our sample that includes all IPOs listed on the NYSE, NYSE MKT and NASDAQ since 1976, categorised into surviving, voluntarily delisted (e.g., acquired firms) and involuntarily delisted firms. Our findings are twofold: (1) Firms that innovate first, invest later, and then payout demonstrate higher survival rates; and (2) surviving firms generally exhibit higher growth, as indicated by a larger market-to-book ratio, are larger in size, are more likely to be technology stocks and attract analyst coverage early. Since IPO firms often face highly uncertain business conditions and five-sixths delist within 7 years, our study is significant in identifying patterns that contribute to the longevity or premature delisting of firms, shedding light on survival mechanisms that transcend sectoral boundaries.