Extrapolation errors in IPOs

• Autores: Ying Xiao, Chris Yung
• Localización: Financial management, ISSN 0046-3892, Vol. 44, Nº 4, 2015, págs. 713-751
• Idioma: inglés
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• Resumen

  • We demonstrate that relatively high revenue growth prior to an initial public offering (IPO) is associated with high IPO prices and poor returns. In particular, low-growth IPO returns, −1% on a three-year annualized basis compared to −12% (equal-weighted) or −29% (value-weighted) for high-growth new issues. There is no evidence that the performance differentials reflect risk premia. Rather, low-growth firms' returns are more stable over time. Finally, while analysts' forecasts are upwardly biased for all firms, the magnitude of this bias is greatest for firms with rapid pre-IPO revenue growth. Overall, these results are consistent with the extrapolation errors model suggested by Lakonishok, Shleifer, and Vishny (1994)