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RFS Advance Access published online on May 25, 2005
Review of Financial Studies, doi:10.1093/rfs/hhi022
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© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org

Article

IPO Market Timing*

Aydogan Alti 1*
1 Department of Finance, University of Texas at Austin

* To whom correspondence should be addressed.
Aydogan Alti, E-mail: aydogan.alti{at}mccombs.utexas.edu


  Abstract

I develop a model of information spillovers in IPOs. The outcomes of pioneers’ IPOs reflect participating investors’ private information on common valuation factors. This makes the pricing of subsequent issues relatively easier and attracts more firms to the IPO market. I show that IPO market timing by the followers emerges as an equilibrium clustering pattern. High offer price realizations for pioneers’ IPOs better reflect investors’ private information and trigger a larger number of subsequent IPOs than low offer price realizations do. This asymmetry in the spillover effect is more pronounced early on in a hot market. The model provides an explanation to recent empirical findings that illustrate the high sensitivity of going public decision to IPO market conditions.

*A previous version of this article was circulated under the title "Clustering Patterns in Initial Public Offerings," which is also the second chapter of my dissertation at Carnegie Mellon University. I would like to thank Rick Green for valuable discussions that have initiated this research. I am also grateful to Andres Almazan, Thomas Chemmanur, Gian Luca Clementi, Burton Hollifield, Eric Hughson, Vojislav Maksimovic, Christine Parlour, Pegaret Pichler, Uday Rajan, Bryan Routledge, Sheridan Titman, Jaime Zender, an anonymous referee, and seminar participants at several universities for their helpful comments. All remaining errors are mine.
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