Seminar by Raffaele Oriani from Department of Economics and Busines, Luiss Guido Carli

Patent commercialization strategy and IPO underpricing:
Evidence from the US semiconductor industry

Abstract

R&D and innovation are critical factors to succeed in high-tech industries. Nevertheless, the inherent uncertainty on the economic returns to innovation leads to substantial information asymmetries between corporate insiders and external investors. Within the context of an IPO, the presence of such information asymmetries may result in a higher risk of underpricing. Some recent studies have analyzed the relationship between patent-based measures and the pricing of IPOs. In this paper, we claim that the patent commercialization strategy of the firm going public matters for IPO undepricing. In particular, underpricing will be higher when a firm’s patent commercialization strategy is more based on licenses rather than product commercialization. Moreover, the stock of patents of the firm going public reduces IPO underpricing more when the patent commercialization strategy is more based on licenses. Our results on a sample of 130 IPOs in the US semiconductor industry confirm these predictions.