On the Long-Run Performance of IPOs: The Effect of Pre-IPO Management Decisions

Abstract:     
We propose that the long-run performance of IPOs is a function of pre-IPO factors, including managerial decisions and the firm's performance prior to going public. We relate long-run performance to a much richer set of explanatory factors than in the previous literature. Using a number of variables, we provide empirical evidence in support of this proposition. The manner in which a company is run before it is listed on the stock exchange gives a strong signal of how its shares will perform in its first few years of coming to the market. Using a UK data set, we find that the percentage of equity issued and the degree of multinationality are key predictors of IPO performance. A revised version of this paper is forthcoming in Managerial Finance, Vol. 33, No. 6, pp. 401-419, 2007.

Keywords: IPOs, long-run performance, signals

JEL Classifications: G14, G32, G24

Working Paper Series