Myth or reality? The long-run underperformance of initial public offerings: Evidence from venture and nonventure capital-backed companies

Journal Article (Journal Article)

We investigate the long-run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture-backed IPOs from 1972-1992 and 3,407 nonventure-backed IPOs from 1975-1992. We find that venture-backed IPOs outperform non-venture-backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure-backed IPOs. In tests using several comparable benchmarks and the Fama-French (1993) three factor asset pricing model, venture-backed companies do not significantly underperform, while the smallest nonventure-backed firms do. Underperformance, however, is not an IPO effect. Similar size and book-to-market firms that have not issued equity perform as poorly as IPOs.

Full Text

Duke Authors

Cited Authors

  • Brav, A; Gompers, PA

Published Date

  • January 1, 1997

Published In

Volume / Issue

  • 52 / 5

Start / End Page

  • 1791 - 1821

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.1997.tb02742.x

Citation Source

  • Scopus