IPO Could Indicate Problems For Competition, Says Yale Study

In initial public stock offering (IPO) by a company’s rival can have significant impact on the profits of other public stocks in the sector, points out a new research report from two Yale University professors.

IPO is bad news for rivals

The paper points out that competitors can see long term profit drop of between 10 and 25 percent. “Overall, the model indicates that an IPO is generally bad news for rivals’ future profits per unit of market share,” wrote Yale University finance professors Matthew Spiegel and Heather Tookes.

What happens is that when a rival company launches their IPO product competition increases, lowering profits. “If forced to provide a broad characterization of what happens, the hypothesis...