IPO activity and market volatility
Journal of Entrepreneurship and Public Policy
ISSN: 2045-2101
Article publication date: 12 March 2018
Abstract
Purpose
The purpose of this paper is to hypothesize two channels in which market volatility affects initial public offering (IPO) activity.
Design/methodology/approach
First, CEOs time the market for IPOs and volatility makes this decision process harder. Second, risk-averse IPO investors become more reluctant toward IPOs during periods of higher volatility for their after-IPO returns.
Findings
The authors provide evidence that higher market volatility leads to lower IPO activity, supporting these hypotheses. More importantly, the authors show that it is not the realized volatility, but rather the implied (expected) volatility, that causes lower IPO activity.
Research limitations/implications
While there may be many companies that are ready to have IPOs, they may be simply waiting for a more opportune time which may not necessarily be a period of high prices but of low volatility.
Practical implications
The public policy prescription is clear: if IPOs are to be encouraged, then regulatory policies should be constructed with the aim of reducing volatility.
Originality/value
This study is the first (to the authors’ knowledge) to argue that it is not the realized volatility which most affects the IPO decisions of executives, entrepreneurs and investors.
Keywords
Citation
Dicle, M.F. and Levendis, J. (2018), "IPO activity and market volatility", Journal of Entrepreneurship and Public Policy, Vol. 7 No. 1, pp. 2-13. https://doi.org/10.1108/JEPP-D-17-00017
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited