The long-run performance of firms going public
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Keywords
Public companies ; Initial Public Offering (IPO)Abstract
Numerous studies have documented an underperformance of firms going public during the first years of their public trading. The aforementioned underperformance can be attributed, among other reasons, to informational inefficiency of the IPO market, the adoption of discretionary accruals adjustments by firms which report unusual high earnings, investor sentiment and over-optimism, the underpricing phenomenon and various other reasons. We have to keep in mind that, since asset pricing literature has not provided us with a model that can accurately and credibly measure risk-adjusted post-IPO performance, we cannot account for the long-run performance of IPOs with certainty. In the research that follows I use three measures to calculate long-run performance; average market-adjusted returns, median market-adjusted returns and cumulative market-adjusted returns.
The purpose of this dissertation is to investigate and try to identify if such an anomaly is present. The results of the research conducted in this dissertation will be compared and contrasted with the findings of previous work and research documented.
The structure of the dissertation is as follows: in the first part several basic elements and concepts of an initial public offering are documented. In the second part is a literature review where various past studies are presented. The third part describes the methodology used to reach a result about the long-run performance of IPOs while the fourth part presents these results. Also, this part contains comparison of the findings with the documented results of the IPO-literature. The fifth and last part of the dissertation puts forward the conclusions of the dissertation along with a brief summary of the results.