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ABSTRACT
This study examines whether pre-IPO brand diversification is related to IPO returns in the restaurant industry. More precisely, the study examines whether brand-diversified restaurant firms experience a lower underpricing in their IPO relative to non-diversified (focused) restaurant firms. Second, the study investigates whether pre-IPO brand diversification affects long-run returns of restaurant IPOs. The sample of study is 106 restaurant firms that completed an IPO between 1981 and 2015. For primary analyses, t-test and ordinary least square regression are used. Findings of the study reveal that pre-IPO brand diversification is a significant firm attribute for a restaurant firm that goes through an IPO. Brand-diversified restaurant firms’ shares are more accurately priced by the investors, therefore they experience underpricing to a significantly lesser degree than focused restaurant firms. The study finds mixed evidence for the long-run returns. In most part, multivariate analyses suggest that pre-IPO brand diversification does not affect the long-run IPO returns of restaurant firms.
Acknowledgments
We would like to acknowledge that this study was supported by the William F. Harrah College of Hospitality at University of Nevada, Las Vegas [Summer Research Program]. We thank College of Hospitality at UNLV for their support. We also want to thank Prof. Martin Kenney and Prof. Donald Patton (Kenney & Patton, Citation2017) for sharing their emerging growth IPOs database with us.
Notes
1. Carter and Manaster underwriter prestige scores are available from Prof. Jay Ritter’s website, and can be accessed at https://site.warrington.ufl.edu/ritter/ipo-data/ under the heading “IPO Underwriter Reputation Rankings (1980–2015)”.