The Long-Term Performance of IPOs Revisited

82 Pages Posted: 10 Mar 2017 Last revised: 27 May 2021

See all articles by Daniel Hoechle

Daniel Hoechle

FHNW School of Business - Institute for Finance; University of Basel - Department of Finance

Larissa Karthaus

University of St. Gallen - Swiss Institute of Banking and Finance

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Date Written: May 27, 2021

Abstract

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

Hoechle, Daniel and Karthaus, Larissa and Schmid, Markus, The Long-Term Performance of IPOs Revisited (May 27, 2021). Available at SSRN: https://ssrn.com/abstract=2929733 or http://dx.doi.org/10.2139/ssrn.2929733

Daniel Hoechle

FHNW School of Business - Institute for Finance ( email )

Peter Merian-Strasse 86
Basel, CH-4002
Switzerland
+41 61 279 17 73 (Phone)

University of Basel - Department of Finance ( email )

Peter Merian-Weg 6
Basel, CH-4002
Switzerland

Larissa Karthaus (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Unterer Graben 21
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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