Strategic networks, certification, and initial public offerings

This study investigates the certification effect of a firm's strategic alliance network on initial public offerings using a large data set involving 3860 IPO events from the U.S. IPO market. The results show that IPO firms with more direct alliance relationships and a more central position in the strategic network allow them to: (i) attract more prestigious underwriters and greater institutional interest; (ii) experience lower underwriting expenses, larger IPO offer sizes, and higher initial returns; and (iii) achieve superior long-term performance. Further, both the IPO firm and their strategic partners' network positions have prominent impacts on an IPO's initial issuing status and long-term performance. Our results suggest that an IPO firm's strategic alliance network serves as a useful indicator by which to determine the quality of the IPO firm. • Strategic networks greatly affect public perception of the quality of an IPO firm • When an IPO firm forges a great number of alliances with other firms or occupies a more central position in the alliance network, it can: 1) bargain for better IPO issuing terms and experience higher initial returns; 2) attract more reputable underwriters and greater institutional interest for investment; 3) achieve larger IPO offer sizes; 4) enjoy superior long-term performance post IPO. • Both the network resources of the focal IPO firms and those of their alliance partners have a significant impact on the focal firm's IPO performance.