Abstract
Extant empirical evidence has documented both a temporal variation in the number of initial public offerings (IPOs) and an industry clustering effect in these offerings. This article attempts to provide insights into this phenomenon by: (i) identifying industry conditions that influence IPO clustering, (ii) analyzing differences in characteristics of clustered versus nonβclustered IPOs, and (iii) studying the impact of IPO clustering on longβrun operating performance. We find that IPO clustering is more likely to occur in highβgrowth fragmented industries that are characterized by strong investment opportunities, favorable investor sentiment, and which require high levels of investments in R&D. Further, we document a negative relation between postβIPO operating performance and whether the IPO firm goes public in its industry cluster period. We conclude that the relatively poor postβIPO operating performance of firms that go public in industry cluster periods likely reflects industry overinvestment arising from too many firms within that industry chasing the same investment opportunities. Copyright Β© 2005 John Wiley & Sons, Ltd.