How Categorizing Companies as Unicorns Affects Their IPOs

Managers, investors, the financial press, and other capital market participants often use categories to describe firms or their securities. Common examples include “bellwether,” “blue chip,” “tech,” “penny,” and “start-up.” Although these categories may increase a firm’s visibility, they can lead market participants to overlook individual firm characteristics and thus bias their evaluation of a firm.

In a recent study, we examine how firm categorization influences investor behavior. In particular, we examine how a firm’s status as a unicorn influences investor demand and retail investment activity at its initial public offering (IPO). We focus our analysis on unicorn IPOs primarily because … Read more