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Journal of the Association for Information Systems

Abstract

In the past few years, there has been a growth in Internet markets run by online investment bankers, where companies and investors can buy and sell initial public offerings (IPOs) of corporate stock. In this study, we confine our examination to the first of what we anticipate will be several phases in the evolution of Internet IPOs: the online distribution of shares. This implies the beginning of a general disintermediation in the IPO process where traditional roles of investment banks are being circumvented via the Internet as participants search for greater market efficiency. This is an important research area because potentially it affects all public companies, or companies considering going public, the investment banking industry, and all stock investors. We address two research issues not considered by previous studies. What factors affect organizational choice of online vs. traditional IPO distribution? What are the financial performance differences for IPOs distributed using online and traditional processes? These issues were addressed using company characteristic and financial performance data from 27 IPOs from the last half of 1998. We find that the Internet IPO firms are larger, have younger CEOs, choose more reputable investment banks and are more likely to be involved in a Web-based business, directly employing the Internet in their product or service, than the firms that choose the traditional method of going public. In addition, market performance, both initially and over the first three months of trading, is significantly greater for Internet IPOs.

DOI

10.17705/1jais.00006

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