Do public firms survive longer if they have VCs and reputable underwriters during their IPO?

What is it about?

We construct a mortality table for U.S. public companies during 1985–2006. Unlike humans, whose mortality rate is J shaped (deaths at birth, and deaths at old age), the mortality rate of firms is inverted U-shaped. Mortality rates of firms initially increase, peaking at age three, and then decrease with age, implying that the first 3 years of public life are critical. Financial intermediaries involved around the “public birth” of a firm (e.g., venture capitalists (VCs) and high-quality underwriters) are associated with lower firm mortality rates, sometimes for up to 7 years after the initial public offering (IPO). VCs reduce mortality rates more through interactions (natal financial care) than through selection (choosing only good firms to interact with). The reverse is true for high-quality underwriters.

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Why is it important?

Actuarial scientists have been constructing mortality tables for humans for more than 400 years. This is the first paper which does the same for public firms. It is also the first paper which links firm longevity to their relationship with financial intermediaries at birth (IPO). The paper was featured in the Wall Street Journal in Feb 28, 2014.

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