Variable definitions
| Variable name | Definition |
|---|---|
| Failure | The indicator variable is equal to 1 if the firm failed within five years after IPO and 0 otherwise |
| Altman Z-Score | Equal to the sum of [1.2 × (current assets - current liabilities)/total assets + 1.4 × retained earnings/total assets +3.3 × earnings before interest and taxes/total assets + 0.6 × market value of equity/book value of total liabilities + 0.1 × sales/total assets] |
| Earnings management variables | |
| AbnCFO | Abnormal cash flow from operations is measured as deviations from the predicted values from the corresponding industry-year regression |
| AbnPROD | Abnormal production is measured as deviations from the predicted values from the corresponding industry-year regression |
| AbnDISX | Abnormal discretionary expenses are measured as deviations from the predicted values from the corresponding industry-year regression |
| Rm_PROXY | The sum of the standardized three real earnings management proxies |
| Abs_DA | The absolute value of discretionary accruals is computed using the Modified Jones model |
| Entrenchment variable | |
| Poison pill | A shareholder right is triggered in the event of an unauthorized change in control that typically renders the target company financially unattractive or dilutes the voting power of the acquirer |
| Control variables | |
| Offer_price | IPO offer price |
| Firstday_ret | First-day initial returns: closing price on the IPO date less offer price as % of the offer price |
| Leverage | Total liabilities are divided by the sum of total assets plus the proceeds raised at the IPO date |
| Gross_margin | The ratio of sales minus cost of goods sold to sales |
| Big4 | The indicator variable equals 1 if the firm has Big 4 and 0 otherwise |
| BTM | The book-to-market ratio is calculated as the book value of equity divided by the market value of equity |
| Nidummy | The indicator variable equals 1 if the firm has negative earnings and 0 otherwise |
| VC dummy | Dummy variable that equals 1 if the IPO firms are backed by VC and 0 otherwise |
| Logage | Measured as the natural logarithm of 1 + IPO firm age, where firm age is calculated as the difference between the firm's founding date and its IPO date |
| Overhang | Overhang is defined as the number of shares outstanding prior to the issue minus secondary shares offered in the IPO, all divided by the total shares offered in the IPO |
| Investment opportunity | We measure investment opportunities as the ratio between research and development (R&D) expense and net sales |
| Product market competition | The product market competition is measured as (−1) times Herfindahl–Hirschman Index (Hj) computed as the sum of squared market shares of all firms on Compustat in an industry based on a three-digit SIC code. Market share is calculated based on the ratio of firm i's sales to the industry j's total sales |
| High-/low-technology firms | The dummy variable takes a value of 1 if the firm belongs to the high-tech industry (DHTECH) and 0 if it belongs elsewhere |
| Variable name | Definition |
|---|---|
| Failure | The indicator variable is equal to 1 if the firm failed within five years after IPO and 0 otherwise |
| Altman Z-Score | Equal to the sum of [1.2 × (current assets - current liabilities)/total assets + 1.4 × retained earnings/total assets +3.3 × earnings before interest and taxes/total assets + 0.6 × market value of equity/book value of total liabilities + 0.1 × sales/total assets] |
| AbnCFO | Abnormal cash flow from operations is measured as deviations from the predicted values from the corresponding industry-year regression |
| AbnPROD | Abnormal production is measured as deviations from the predicted values from the corresponding industry-year regression |
| AbnDISX | Abnormal discretionary expenses are measured as deviations from the predicted values from the corresponding industry-year regression |
| Rm_PROXY | The sum of the standardized three real earnings management proxies |
| Abs_DA | The absolute value of discretionary accruals is computed using the Modified Jones model |
| Poison pill | A shareholder right is triggered in the event of an unauthorized change in control that typically renders the target company financially unattractive or dilutes the voting power of the acquirer |
| Offer_price | IPO offer price |
| First-day initial returns: closing price on the IPO date less offer price as % of the offer price | |
| Leverage | Total liabilities are divided by the sum of total assets plus the proceeds raised at the IPO date |
| Gross_margin | The ratio of sales minus cost of goods sold to sales |
| Big4 | The indicator variable equals 1 if the firm has Big 4 and 0 otherwise |
| BTM | The book-to-market ratio is calculated as the book value of equity divided by the market value of equity |
| Nidummy | The indicator variable equals 1 if the firm has negative earnings and 0 otherwise |
| VC dummy | Dummy variable that equals 1 if the IPO firms are backed by VC and 0 otherwise |
| Logage | Measured as the natural logarithm of 1 + IPO firm age, where firm age is calculated as the difference between the firm's founding date and its IPO date |
| Overhang | Overhang is defined as the number of shares outstanding prior to the issue minus secondary shares offered in the IPO, all divided by the total shares offered in the IPO |
| Investment opportunity | We measure investment opportunities as the ratio between research and development (R&D) expense and net sales |
| Product market competition | The product market competition is measured as (−1) times Herfindahl–Hirschman Index (Hj) computed as the sum of squared market shares of all firms on Compustat in an industry based on a three-digit SIC code. Market share is calculated based on the ratio of firm i's sales to the industry j's total sales |
| High-/low-technology firms | The dummy variable takes a value of 1 if the firm belongs to the high-tech industry (DHTECH) and 0 if it belongs elsewhere |
Source(s): Table by authors
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