Modeling Internet Operations Using Initial Public Offerings

In this research we test the generalizability of an existing model for classifying information‐intensive services that can be globally disaggregated to Internet services. This categorization allows us to judge which types of Internet Initial Public Offerings (IPOs) are likely to have superior performance. Specifically, we hypothesize that Internet firms with higher information intensity, lower physical presence and lower customer contact needs will have a greater probability of generating larger risk‐adjusted returns. We test these hypotheses on 340 Internet IPOs and find partial support for the model. In particular, Internet firms with high information intensity and low customer contact need yield superior performance. However, firms with low physical presence underperform in our sample.