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The long-run performance of UK IPOs: Can it be predicted?

Goergen, Marc, Khurshed, Arif and Mudambi, Ram 2007. The long-run performance of UK IPOs: Can it be predicted? Managerial Finance 33 (6) , pp. 401-419. 10.1108/03074350710748759

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Uncontrolled Keywords: Company performance; Share values; Strategic management; Decision making; United Kingdom
Publisher: Emerald
ISSN: 0307-4358
Last Modified: 04 Jun 2017 04:39

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