The Long-Term Performance of IPO's, Revisited

Item Type Monograph (Working Paper)

Prior research on IPO long-term performance, focusing on three- to five-year post-issue periods, shows that the apparent IPO underperformance disappears when different risk exposures across IPO and mature firms are accounted for by using a Carhart (1997) factor model. We show that a sample of 7,487 U.S. IPOs between 1975 and 2014 continues to significantly underperform mature firms in terms of Carhartalphas over the first year after going public when using conventional portfolio sorts. This result prevails across various sub-samples, and also withstands a battery of robustness checks extending the Carhart (1997) factor model with multiple firm characteristics in a statistically robust setting. Further econometric tests, however, reveal that the apparently robust IPO underperformance is likely to be the result of omitted, yet persistent, firm-specific factors rendering IPO firms different from mature firms. Specifically, we find IPO underperformance to disappear when accounting for unobservable heterogeneity across firms.

Authors Hoechle, Daniel; Karthaus, Larissa & Schmid, Markus
Language English
Keywords IPO underperformance, long-term performance evaluation, time horizon, firm characteristics, firm fixed effects
Subjects business studies
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date March 2017
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2017/06
Number of Pages 52
Depositing User Geraldine Frei-Böbel
Date Deposited 10 Apr 2017 08:35
Last Modified 02 Oct 2018 11:28


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Hoechle, Daniel; Karthaus, Larissa & Schmid, Markus: The Long-Term Performance of IPO's, Revisited. School of Finance Working Paper Series, 2017, 2017/06.

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