上市公司盈利能力分析中英文对照外文翻译文献文档格式.docx

上市公司盈利能力分析中英文对照外文翻译文献文档格式.docx

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Thepath-to-profitabilityofInternetIPOfirms

Abstract

Extantempiricalevidenceindicatesthattheproportionoffirmsgoingpublicpriortoachievingprofitabilityhasbeenincreasingovertime.Thisphenomenonislargelydrivenbyanincreaseintheproportionoftechnologyfirmsgoingpublic.Sincethereisconsiderableuncertaintyregardingthelong-termeconomicviabilityofthesefirmsatthetimeofgoingpublic,identifyingfactorsthatinfluencetheirabilitytoattainkeypost-IPOmilestonessuchasachievingprofitabilityrepresentsanimportantareaofresearch.Weemployatheoreticalframeworkbuiltaroundagencyandsignalingconsiderationstoidentifyfactorsthatinfluencetheprobabilityandtimingofpost-IPOprofitabilityofInternetIPOfirms.WeestimateCoxProportionalHazardsmodelstotestwhetherfactorsidentifiedbyourtheoreticalframeworksignificantlyimpacttheprobabilityofpost-IPOprofitabilityasafunctionoftime.Wefindthattheprobabilityofpost-IPOprofitabilityincreaseswithpre-IPOinvestordemandandchangeinownershipattheIPOofthetopofficersanddirectors.Ontheotherhand,theprobabilityofpost-IPOprofitabilitydecreaseswiththeventurecapitalparticipation,proportionofoutsidersontheboard,andpre-marketvaluationuncertainty.

Keywords:

Initialpublicofferings,Internetfirms,Path-to-profitability,Hazardmodels,Survival

1. Executivesummary

Therehasbeenanincreasingtendencyforfirmstogopubliconthebasisofapromiseofprofitabilityratherthanactualprofitability.Further,thisphenomenonislargelydrivenbytheincreaseintheproportionoftechnologyfirmsgoingpublic.Theriskofpost-IPOfailure

isparticularlyhighforunprofitablefirmsasshiftsininvestorsentimentleadingtonegativemarketperceptionsregardingtheirprospectsorunfavorablefinancingenvironmentscouldleadtoashutdownofexternalfinancingsourcestherebyimperilingfirmsurvival.Therefore,theactualaccomplishmentofpost-IPOprofitabilityrepresentsanimportantmilestoneinthecompany'

sevolutionsinceitsignalsthelong-termeconomicviabilityofthefirm.Whiletheextantresearchinentrepreneurshiphasfocusedonfactorsinfluencingtheabilityofentrepreneurialfirmstoattainimportantmilestonespriortooratthetimeofgoingpublic,relativelylittleisknownregardingthetimingorabilityoffirmstoachievecriticalpost-IPOmilestones.Inthisstudy,weconstructatheoreticalframeworkanchoredonagencyandsignalingtheoriestounderstandtheimpactofpre-IPOfactorssuchasgovernanceandownershipstructure,managementquality,institutionalinvestordemand,andthirdpartycertificationonfirms*post-IPOpath-to-profitability.WeattempttovalidatethetestableimplicationsarisingfromourtheoreticalframeworkusingtheInternetindustryasoursetting.Achievingpost-issueprofitabilityinatimelymannerisofparticularinterestforInternetIPOfirmssincetheyarepredominantlyunprofitableatthetimeofgoingpublicandaretypicallycharacterizedbyhighcashburnratestherebyraisingquestionsregardingtheirlong-termeconomicviability.Sincethereisarepeatedtendencyforhightechnologyfirmsinvariousemergingsectorsoftheeconomytogopublicinwavesamidinvestoroptimismfollowedbydisappointingperformance,insightsgainedfromastudyoffactorsthatinfluencethepath-to-profitabilityofInternetIPOfirmswillhelpincreaseourunderstandingofthedevelopmentpathandlong-termeconomicviabilityofentrepreneurialfirmsinemerging,hightechnologyindustries.

2. Introduction

Thepastfewdecadeshavewitnessedtheformationanddevelopmentofseveralvitallyimportanttechnologicallyorientedemergingindustriessuchasdiskdrive,biotechnology,andmostrecentlytheInternetindustry.Entrepreneurialfirmsinsuchknowledgeintensiveindustriesareincreasinglygoingpublicearlierintheirlifecyclewhilethereisstillagreatdealofuncertaintyandinformationasymmetryregardingtheirfutureprospects（JaneyandFolta,2006）.Anaturalconsequenceoftherapidtransitionfromfoundingstagefirmstopubliccorporationsisanincreasingtendencyforfirmstogopubliconthebasisofapromiseofprofitabilityratherthanactualprofitability.3Althoughsustainedprofitabilityisnolongerarequirementforfirmsinordertogopublic,actualaccomplishmentofpost-IPOprofitabilityrepresentsanimportantmilestoneinthefirm'

sevolutionsinceitreducesuncertaintyregardingthelong-termeconomicviabilityofthefirm.Inthispaper,wefocusonidentifyingobservablefactorsatthetimeofgoingpublicthathavetheabilitytoinfluencethelikelihoodandtimingofattainingpost-IPOprofitabilitybyInternetfirms.WerestrictourstudytotheInternetindustrysinceitrepresentsanaturalsettingtostudythelong-termeconomicviabilityofanemergingindustrywherefirmstendtogopublicwhentheyarepredominantlyunprofitableandwherethereisconsiderablyuncertaintyandinformationasymmetryregardingtheirfutureprospects.4

Theattainmentofpost-IPOprofitabilityassumessignificancesincetheIPOeventdoesnotprovidethesameleveloflegitimizingdifferentiationthatitdidinthepastassustainedprofitabilityisnolongeraprerequisitetogopublicparticularlyinperiodswherethemarketisfavorablyinclinedtowardsinvestmentsratherthandemonstrationofprofitability（StuartetaL,1999;

JaneyandFolta,2006）.DuringtheInternetboom,investorsreadilyacceptedthemantraof"

growthatallcosts,,andenthusiasticallybidupthepost-IPOofferingpricestoirrationallevels（Langeetal.,2001）.Infact,investorfocusonthepromiseofgrowthratherthanprofitabilityresultedinInternetstart-upsbeingvieweddifferentlyfromtypicalnewventuresinthattheywereabletomarshalsubstantialresourcesvirtuallyindependentofperformancebenchmarks（MudambiandTreichel,2005）.

SincetheInternetbubbleburstinApril2000,venturecapitalfundsdriedupandmanyfirmsthathadsuccessfulIPOswentbankruptorfacedsevereliquidityproblems（Chang,2004）.Consequently,investors'

attentionshiftedfromtheirpreviouslysingularfocuson

growthprospectstothequestionofprofitabilitywiththeirnewmantrabeing"

path-to-profitability.^^Assuch,marketparticipantsfocusedonnotjustwhethertheIPOfirmwould

beabletoachieveprofitabilitybutalso"

when"

or"

howsoon.^,IPOfirmsunabletocrediblydemonstrateaclearpath-to-profitabilitywereswiftlypunishedwithsteeplylowervaluationsandconsequentlyfacedsignificantlyhigherfinancingconstraints.Sincecashflownegativefirmsarenotyetselfsufficientand,therefore,dependentonexternalfinancingtocontinuetooperate,theinabilitytoraiseadditionalcapitalresultsinaviciouscycleofeventsthatcanquicklyleadtodelistingandevenbankruptcy.5Therefore,theactualattainmentofpost-IPOprofitabilityrepresentsanimportantmilestoneintheevolutionofanIPOfirmprovidingitwithlegitimacyandsignalingitsabilitytoremaineconomicallyviablethroughtheupsanddownsassociatedwithchangingcapitalmarketconditions.ThetheoreticalframeworksupportingouranalysisdrawsfromsignalingandagencytheoriesastheyrelatetoIPOfirms.Inourstudy,signalingtheoryprovidesthetheoreticalbasistoevaluatethesignalingimpactoffactorssuchasmanagementquality,thirdpartycertification,institutionalinvestordemand,andpre-IPOvaluationuncertaintyonthepath-to-profitability.Similarly,agencytheoryprovidesthetheoreticalfoundationstoallowustoexaminetheimpactofgovernancestructureandchangeintopmanagementownershipatthetimeofgoingpublicontheprobabilityofachievingthepost-IPOprofitabilitymilestone.Ourempiricalanalysisisbasedonthehazardanalysismethodologytoidentifythedeterminantsoftheprobabilityofbecomingprofitableasafunctionoftimeforasampleof160InternetIPOsissuedduringtheperiod1996-2000.

Ourstudymakesseveralcontributions.First,weconstructatheoreticalframeworkbasedonagencyandsignalingtheoriestoidentifyfactorsthatmayinfluencethepath-to-profitabilityofIPOfirms.Second,weprovideempiricalevidenceontheeconomicviabilityofnewlypublicfirms（path-to-profitabilityandfirmsurvival）intheInternetindustry.Third,weaddtothetheoreticalandempiricalentrepreneurshipliteraturethathasfocusedonfactorsinfluencingtheabilityofentrepreneurialfirmstoachievecriticalmilestonesduringthetransitionfromprivatetopublicownership.WhilepreviousstudieshavefocusedonmilestonesduringtheprivatephaseoffirmdevelopmentsuchasreceiptofVCfundingandsuccessfulcompletionofapublicoffering（Chang,2004;

Dimovand

Shepherd,2005;

Beckmanetal.,2007）,ourstudyextendsthisliteraturebyfocusingonpost-IPOmilestones.Finally,extantempiricalevidenceindicatesthatthephenomenonofyoung,earlystagefirmsbelongingtorelativelynewindustriesbeingtakenpublicamidawaveofinvestoroptimismfueledbythepromiseofgrowthratherthanprofitabilitytendstorepeatitselfovertime.6However,profitabilitytendstoremainelusiveandtakesmuchlongerthananticipatedwhichresultsininvestordisillusionmentandconsequentlyhighfailurerateamongfirmsinsuchsectors.7Therefore,ourstudyislikelytoprovideusefullessonstoinvestorswhenapplyingvaluationstoIPOfirmswhenthisphenomenonstartstorepeatitself.

Thisarticlesproceedsasfollows.First,usingagencyandsignalingtheories,wedevelopourhypotheses.Second,wedescribeoursampleselectionproceduresandpresentdescriptivestatistics.Third,wedescribeourresearchmethodsandp