The Long-Term Performance of IPOs Revisited
82 Pages Posted: 10 Mar 2017 Last revised: 27 May 2021
Date Written: May 27, 2021
We show that, contrary to post-issue horizons of three to five years, underperformance in the first year after going public cannot be explained by the Carhart (1997) model or extensions of the model proposed in prior research on long-term IPO performance. We find differences in the risk profiles of IPO and mature firms, as captured by differences in profitability and investment factor exposures, and heterogeneity across firms, as captured by firm fixed effects, to explain IPO underperformance. Both these explanations for IPO underperformance relate to firms’ survival probability: The remaining life expectancy of IPO firms is shorter than that of mature firms, on average. Unsurprisingly, firms with shorter life expectancy tend to underperform.
Keywords: IPO underperformance, long-term performance evaluation, time horizon, survivorship analysis, life expectancy
JEL Classification: G14, G24, G32
Suggested Citation: Suggested Citation