Technological innovation and initial public offerings

This article shows how both technological and competitive risks affect the timing of private and initial public offerings in an emerging industry. Ear ly private financing occurs in industries that are perceived to be risky, w ith high development costs and low probability of being displaced by techno logically superior rivals. Early public financing occurs in industries perc eived to be viable, with low development costs and low probability of displ acement. Due to feedback effects between financial and product markets, the value of investors proprietary information is greater in private than in i nitial public offerings. This has implications for underpricing.