Committed anchor investment and IPO survival – The roles of cornerstone and strategic investors

Abstract

Recent U.S. policy encourages anchor investments to facilitate initial public offerings (IPO) and increase companies' access to external finance. As access to external funds relies on stocks remaining listed, we study anchor investors' impact on how long IPOs stay listed. We examine two types of anchor investors in Hong Kong: strategic and cornerstone investors, that are similar to U.S. anchor investors, but make varying levels of commitment at and post-IPO. We find that IPOs backed by more committed investors, with longer post-IPO commitments (lockups), stay listed longer. This suggests that the success of U.S. policies may require investors' commitment.

Stay Concentrated to Survive

“…Previous studies also use survival analysis to investigate the determinants of post-IPO firm failures (e.g. Kini, 2000, 2008;Espenlaub et al, 2016;. Compared to conventional econometrical models (e.g.…”

“…it continued to trade at the end of 2017), and as acquired if the IPO firm has assigned to it a code between 200 and 299. Previous studies, such as Espenlaub et al (2016), and , define failed firms as those that delisted from the market for negative reasons (e.g. liquidation, bankruptcy, insufficient capital, failure to meet financial regulation, or delinquent in filings), rather than delisting motives with less harmful impacts on investors (e.g.…”

“…Fama and French (2004) report a significant delisting rate (44%) between 1980 and 1991 for firms in the first ten years after being newly listed due to poor corporate performance (see, for example, Ritter and Welch (2002) and Demers and Joos (2007) for similar findings). Evidence shows that a variety of firm and offering characteristics at the time of going public are deemed as important signals for a firm's future performance and therefore affect post-offering survival times, including venture capitalist participation (Jain and Kini, 2000), strategic and cornerstone investors (Espenlaub et al, 2016), and the CEO's working experience . However, the relationship between a firm's geographical characteristics and its post-IPO survival remains unexplored.…”

“…To the best of our knowledge, we provide the first study to associate geography and corporate survival. Previous studies focus on a variety of firm and offering characteristics that affect IPO survival, such as firm age, size, and risk factors (Hensler et al, 1997), the participation of venture capitalists (Jain and Kini, 2000), strategic and cornerstone investors (Espenlaub et al, 2016), and CEO's working experience . However, it is unclear how geography affects the survivability of newly listed firms.…”

Beyond the Board Realm: Women in Senior Management and their Impact on IPO Capital Funding

“…While cornerstone parties pay the same offer price as all other subscribers, they face lock-up of their contractually agreed allocation. Cornerstone investors serve an important role in signalling an IPO firm's value (McGuinness, 2014) and survival prospects (Espenlaub et al, 2016). Such allocations add to certification effects from venture capitalists (Bruton et al, 2010;Megginson and Weiss, 1991) and other IPO advisors.…”