Export Activity, IPO Underpricing, Long-Run Performance and Survival

We examine the effect of export activity on the pricing of initial public offerings (IPOs) and their post-IPO performance and survival. On the one hand, foreign market operations diversify a firm’s revenue base and the risk of domestic cash flow shocks and may also provide an entree into foreign sources of financing. On the other hand, export activity may bring additional risk and complexity leading to greater uncertainty about the pricing of the IPO. Indeed, relative to non-exporting IPO firms, exporting IPO firms are significantly smaller, are riskier according to standard measures, and have higher expenditures on research and development. Using a sample of 4,837 IPO firms from 1986 to 2010, we find that IPO firms with export activity have a significantly lower level of underpricing than IPO firms without export activity after controlling for all factors known to influence IPO initial returns. In addition, the risk-adjust returns of exporting IPO firms outperform non-exporting IPO firms by 55 - 122 basis points on a monthly basis over either three or five year periods after the IPO. Our initial return and long-run return results are highly robust to propensity score matching techniques which account for possible reversed causality and selection bias. Lastly, we find that exporting IPO firms have significantly higher survival rates than non-exporting IPO firms; the hazard rate of firms that export around IPO years is 54 - 71% of firms that do not export. Overall, we provide strong evidence that export activity has an economically significant effect on the valuation and subsequent performance of IPO firms.