Entry of new firms changes the competitive landscape of the industry affecting the performance of incumbent firms. A newly IPO firm will negatively affect the incumbent firm’s performance (Hsu, Reed, & Rocholl, 2010) The IPO firm’s offering prospects signals to the strategic intent of the firm. The prospectus may indicate an entrepreneurial orientation (EO) or a marketing orientation (EO). The EO is defined as the degree to which the firm’s strategic orientation is proactive, innovative, risk-taking competitively aggressive, and emphasizes autonomy (Lumpkin & Dess, 1996). The MO signals competitor orientation, customer orientation, a long-term focus, and profitability (Kohli & Jaworski, 1990).  Incumbent firms that are vertically integrated or are diversified have the ability reallocate its resources from one business to another to deal with the entry of the new firm (Chen, 1996). They will be less impacted than a single business firm in the industry. The incumbent firm’s ability can be assessed by its unabsorbed slack, its value added to sales ratio and its proportion of assets in the focal business. We assess the impact of the new firm on incumbent firm by its cumulative abnormal return (CAR). We hypothesize that:

H1: The IPO firm with high EO will have a smaller negative impact on the incumbent firm’s CAR

H2: The IPO firm with high MO will have a larger negative impact on the incumbent firm’s CAR

H3: The effect of the IPO firm’s strategic orientation (EO or MO) on the incumbent firm will vary by the degree of vertical integration of the incumbent and the focus of the IPO firms on the incumbent’s core business activity