Author(s): Namryoung Lee
Going public, which can facilitate financing, is a priority challenge for private technology companies that need to invest large sums of money into R&D activities. With that in mind, this study analyzes the relationship between pre-IPO selling, general & administrative (SG&A) expenses and the age at IPO for biotech companies. The results indicate that pre-IPO total SG&A spending has a positive correlation with age at IPO. This implies that SG&A spending is an inefficient expenditure management strategy, as has been argued in previous studies, and could delay an IPO. Subsequently, this study subdivides SG&A expenses into four categories – R&D expenses, advertising expenses, sales promotion expenses, and other expenses – to see how each category affects age at IPO. Only R&D expenses are negatively correlated with age at IPO, suggesting that the R&D investments of technology companies have a positive impact on future corporate growth. In addition, the correlation between SG&A stickiness signaling and age at IPO is also examined. SG&A stickiness signaling during periods in which sales decrease is negatively associated with age at IPO. It can therefore be concluded that SG&A stickiness during periods of declining sales can be connected to positive prospects for the future, thereby potentially accelerating IPOs. This is consistent with previous studies. Collectively, the results serve as a reminder to private biotech companies preparing for IPOs of the importance of SG&A expenditure management.