The Long Run Performance of U.K. IPOs: Can it Be Predicted?

Managerial Finance, Vol. 33, No. 6, pp. 401-419, 2007

Posted: 5 Nov 2007

See all articles by Arif Khurshed

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Ram Mudambi

Temple University - Department of Strategic Management

Abstract

Purpose - The aim of the paper is to study the long-run under-performance of UK initial public offerings (IPOs) by relating it to the pre-IPO financial performance of the firm as well as the managerial decisions taken before the IPO.

Design/methodology/approach - The three-year share returns of UK IPOs is studied using various methodologies such as buy and hold returns, cumulative abnormal returns and Fama and French three-factor returns.

Findings - It was found that the percentage of equity issued and the degree of multinationality of a firm are the key predictors of its performance after the IPO. It is also found that small firms behave differently from large firms and suffer from worse long-run performance than large firms.

Research limitations/implications - There is a great need for future research to focus on ownership structure and long-run returns. Further, a focus on the level of debt and venture capital financing in the pre-IPO period may also uncover important relationships with the long-run performance of a firm.

Practical implications - The results obtained from this study provide important information for the prospective long term investors in new issues. While pre-IPO performance of a firm cannot predict the post-IPO performance with certainty, nevertheless the results of this study suggest that long-term investors should show caution while deciding on long term investment in IPO firms.

Originality/value - The paper explains the post-IPO underperformance of firms by relating it to the pre-IPO managerial decisions made in the firm. It also documents the role of multinationality in explaining long run underperformance.

Keywords: Company performance, Share values, Strategic management, Decision making

JEL Classification: G12, G14, G24, D81

Suggested Citation

Khurshed, Arif and Goergen, Marc and Mudambi, Ram, The Long Run Performance of U.K. IPOs: Can it Be Predicted?. Managerial Finance, Vol. 33, No. 6, pp. 401-419, 2007, Available at SSRN: https://ssrn.com/abstract=1025723

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance ( email )

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+44 0 161 275 4475 (Phone)
+44 0 161 275 4023 (Fax)

Marc Goergen

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Ram Mudambi (Contact Author)

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-2099 (Phone)
215-204-8029 (Fax)

HOME PAGE: http://sbm.temple.edu/~rmudambi/index.html

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