Start Date
10-12-2017 12:00 AM
Description
Internet startups often distort financing amounts and release fake news about their financing records. In this study, we explicitly examine whether it pays to release fake news that enclose distorted financing information before the initial public offering (IPO). Combing the first mover advantage research and efficient market hypothesis with the unique attributes of Internet startups, we hypothesize on the effect of distorting pre-IPO financing information on Internet startups’ IPO performance. Empirical analysis based on a unique data set collected from Capital IQ, Crunchbase, the SEC, prospectuses, and news release reveals that the greater Internet startups distort the pre-IPO financing amount, the faster they go public, but the poorer share returns they earn after IPO. This study contributes to the emerging literature on the relationship between IT and entrepreneurship, and provides practical implications for Internet startups and venture capitalists.
Recommended Citation
Sun, Ya hui; Zhou, Jin; Qu, Zhe; and Zhang, Cheng, "Is Fake News Profitable? The Effect of Distorting Pre-IPO Financing on IPO Performance of Internet Firms" (2017). ICIS 2017 Proceedings. 28.
https://aisel.aisnet.org/icis2017/EBusiness/Presentations/28
Is Fake News Profitable? The Effect of Distorting Pre-IPO Financing on IPO Performance of Internet Firms
Internet startups often distort financing amounts and release fake news about their financing records. In this study, we explicitly examine whether it pays to release fake news that enclose distorted financing information before the initial public offering (IPO). Combing the first mover advantage research and efficient market hypothesis with the unique attributes of Internet startups, we hypothesize on the effect of distorting pre-IPO financing information on Internet startups’ IPO performance. Empirical analysis based on a unique data set collected from Capital IQ, Crunchbase, the SEC, prospectuses, and news release reveals that the greater Internet startups distort the pre-IPO financing amount, the faster they go public, but the poorer share returns they earn after IPO. This study contributes to the emerging literature on the relationship between IT and entrepreneurship, and provides practical implications for Internet startups and venture capitalists.