| Every year a substantial number of privately held companies file with the Security and Exchange Commission (SEC) in an attempt to go public. However, not every firm is successful in completing its issue. Both the number of successful initial public offerings (IPOs) and withdrawn issues fluctuate considerably over time. This study explores whether security market conditions, financial characteristics of IPO firms, and signaling factors can discriminate completed IPOs and unsuccessful ones and investigates the differences between IPOs in hot and cold markets.; The research shows that financial market conditions are important determinants of the outcome of the IPO process in both statistical and economic terms. Firms are more likely to complete their IPOs when market conditions are favorable. On average, financial characteristics of firms going public in the hot market are weaker than those of cold firms, and signaling factors indicate lower value for hot firms. However, investors show stronger interest in hot IPOs, and it takes less time to complete an issue in a hot market. Stocks starting to trade in a hot market have worse postoffering performance than their counterparts in a cold market. These findings can be explained by the theory of investor overoptimism in hot markets. |
