Short-term and long-term effect of firms’ IPO on competitors’ performance

Abstract

IPO is an important corporate action that has far-reaching effects from the IPO firms to their competitors. However, there are few empirical studies on how IPO firms affect their rival stock performances in emerging markets. This is the first study that provides empirical studies on the short-term and long-term effects of IPO firms on their competitor performance in Indonesia. We perform short-term and long-term event studies and cross-section regression with IPO firm competitor stock performance as the dependent variable, IPO firm stock performance as an independent variable, and related IPO firm competitor variables as control variables. We cover IPO firms from 2010 to 20 17. The sample taken is 152 IPO firms and 8.085 competitors and 38 IPO firms after controlling for contamination effect and 1.715 IPO firm competitors. Our event study finds that both IPO and their competitor stock have positive stock performance in both short and long term. IPO stock performance in the long term is relatively stagnant that enables the IPO firm competitor stock performance to catch up to IPO stock performance. Our regression results only find that IPO stock performance has short term negative effect and a positive long term effect toward IPO firm competitors stock performance, both results were drawn after controlling the contamination effect. Our findings imply that the IPO firm provides additional good information to the industry - wide information and no discernible competitive landscape changes are detected.