Source: French to English Tester Published on: 2026-05-16
Source: The Conversation – in French– By Brad Badertscher, Professor of Accountancy, University of Notre Dame The hope of achieving very high returns with SpaceX‘s IPO does not stand up to the scrutiny of these researchers examining 1,000 IPOs in the 21st century.
SpaceX,CC BY Going public is no longer necessarily the beginning of a rapid growth: it is often the moment chosen by the first investors to cash in their gains. Elon Musk and his company SpaceX are expected soongo publicin what could be thelargest Initial Public Offering (IPO) in history.
But my new research suggests that investors who buy shares of the company are unlikely to experience the rapid growth observed in some past IPOs. The rocket and satellite manufacturer, which hasfiled confidentiallyits initial public offering file on the 1stherBy April 2026, it plans to raise up to 75 billion dollars, which would give it a valuation of around 1,750 billion dollars.
SpaceX is not the only highly publicized company expected to go public this year. Companies specializing in artificial intelligence, OpenAI and Anthropic, are also expected to be launched in the coming months through major initial public offerings.
Important fees for banks For Wall Street, this means spectacular operations, accompanied by significant commissions for the banks involved. For the initial investors and executives,this can translate into colossal gains. For individual investors, however, the question is whether the initial public offering of a highly visible company truly constitutes an investment opportunity.
What does it concretely mean for a company to “go public”? For decades, an initial public offering marked the moment when ordinary investors could enter the capital of a fast-growing company andparticipate in its future expansion.
Today, this moment often occurs much later in the life of the company – once a large part of this spectacular growth has already taken place, out of sight. I work on financial information, executive compensation, and initial public offerings.
In arecent study covering nearly 1,000 American IPOs (initial public offerings), conducted between 2007 and 2022, my co-authors and I analyzed what happens in the pivotal period just before and just after companies go public. Our results suggest that the contemporary IPO increasingly represents an opportunity for insiders and executives to cash in their gains – rather than the beginning of value creation for public investors.
Initial public offerings used to finance growth An initial public offering corresponds to the moment when a private company sells its shares to the public for the first time. Traditionally, IPOs allowed young companies lacking liquidity toraise funds to grow.
Investors provided capital and thus participated in the potential future success. Many companies that became iconic – such as Amazon and Apple –went public very early in their life cycle. A large part of their spectacular growth occurred after their introduction.
This model has changed. Research shows that thenumber of companies listed in the United States has sharply decreasedsince the late 1990s. At the same time, private funding, coming from venture capital and private equity,have grown significantly.
In our work,we showthat the average age of companies at the time of their initial public offering has more than doubled, rising from around four years in the early 2000s to nearly ten years in 2025.
Companies can now raise billions of dollars without going public. They no longer need public markets as early as before. What we observed on nearly 1,000 IPOs Our research focuses on what regulators and practitioners call the”cheap stock”.
These are stock purchase options granted to executives before an initial public offering, at a price much lower than the IPO price. These options give the right to buy shares later at a price set in advance.
If the IPO price is much higher, these options become immediately very lucrative. For example, imagine you are the CEO of a company about to go public. You have received options allowing you to buy 10,000 shares at 2 dollars each.
If the IPO price is set at 20 dollars, you can buy these shares at 2 dollars and then immediately sell them at around 20 dollars, thus making a profit of 180,000 dollars. We analyzed nearly 1,000 IPOs between 2007 and 2022.
On average, the IPO price was 5.7 times higher than the exercise price of the options granted in the year preceding the IPO. Simply put, executives often held options whose value soared as soon as the company went public.
Part of this gap may reflect actual growth of the company or the fact that private shares are less liquid—that is, harder to sell—than publicly traded shares. But even taking these factors into account, the gap remains significant.
This has consequences for future shareholders, that is to say, those who buy shares after the IPO: a substantial portion of the value has already been captured by insiders even before the entry of public investors.
Incentives to go public We also identified recurring patterns in cases where companies granted heavily discounted options. Companies backed by venture capital and private institutional investors more often exhibited significant discrepancies between the option price and the IPO price.
This reinforces a fairly simple explanation. Someearly investors seek liquidity, that is to say the possibility of easily converting their investments into cash. Granting executives options that gain significant value at the time of the IPO can encourage them to see the operation through to completion.
In this logic, the IPO often becomes a liquidity event—a means for insiders to cash in their gains. This does not necessarily imply problematic behavior, but it suggests that the IPO now often reflects the moment chosen by insiders to exit—rather than just a simple growth opportunity for public investors.
What happens after the IPO The story does not end on the day of the initial public offering. Our research shows that companies that granted more “cheap stock” invest less, after their IPO, in capital expenditures and research and development.
These very favorable options reduce incentives to take risks, which can, in the long run, weigh on the company’s financial prospects. Leaders who already hold highly valued options may prefer stable growth over more aggressive expansion.
However, since risk and return are linked, companies that take fewer riskstend to grow more slowly, which means that future shareholders could record more modest gains. Our results support this hypothesis: we found that companies that granted more “cheap stock” record lower stock market returns in the long term after their initial public offering.
This is a crucial point for new investors, who do not expect only aexponential growthafter the IPO, but also good stock market performances over time.
For public investors, the conclusion is simple: a large part of the spectacular growth in company value now occurs while they are still private.
Brad Badertscher does not work for, advise, own shares in, receive funds from any organization that could profit from this article, and has declared no other affiliations than his research organization. –ref.
Why SpaceX and OpenAI IPOs are unlikely to offer spectacular returns –https://theconversation.com/why-spacex-and-openais-ipos-are-unlikely-to-deliver-spectacular-returns-281262