Initial Performance of IPOs and the Bankruptcy Risk: A Comparison of Internet Firms and the Traditional Firms

This study examines whether Internet Firms’ IPOs have more of a tendency to fail than Traditional Firms’ IPOs. IPO issue has long been known as an interesting yet complicated topic to explore. There are heated debates on whether Internet Firm IPOs outperform or underperform Traditional Firm IPOs. In other words, whether investment risks associated with Internet Firms are different than Traditional Firms? Should investment decision-making process be different for Internet Firms than Traditional Firms? In this study, Internet Firms are defined as companies that are providing goods and services through Internet. Furthermore, all other types of companies are considered as Traditional Firms. The Z-score formula for predicting bankruptcy of Altman (1968) was utilized. Then the two-way factorial ANOVA was conducted with the type I error as 0.05 to test the Z-Score across 12 quarters from January 2012 to December 2014. The findings revealed that both Internet Firms and Traditional Firms generally had similar risks as no one type of firms showed significantly higher risks than the other.