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IPO Failure Risk

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Author Info

  • ELIZABETH DEMERS
  • PHILIP JOOS

Abstract

ABSTRACT We explore the factors associated with historical IPO failures by developing an IPO failure prediction model that includes accounting information as well as proxies for the role of information intermediaries and other IPO deal-related characteristics. We document statistically significant differences in failure models applicable to nontech versus high tech IPOs, and these structural differences are largely driven by accounting-based proxies for firms' investments in intangible assets, operating performance, and financial leverage. We also develop parsimonious, predominantly accounting-based, strictly out-of-sample (i.e., no hindsight) IPO failure forecasting models for each of the two sectors. We find that our forecasts are negatively associated with one-year post-IPO abnormal returns. A pseudo-hedge strategy of going short (long) in high (low) failure risk portfolios yields returns of economically significant magnitudes over the one-year horizon, and is robust to alternative returns methodologies. Further results suggest that IPO long-run returns anomalies may persist, but they take different forms for high-tech and nontech IPOs. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2007.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

Volume (Year): 45 (2007)
Issue (Month): 2 (05)
Pages: 333-371

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Handle: RePEc:bla:joares:v:45:y:2007:i:2:p:333-371

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Cited by:
  1. Carmine Zoccali, 2012. "The Role Of Financial Indicators In The Life Of Italian Football Clubs," Rivista di Diritto ed Economia dello Sport, Centro di diritto e business dello Sport, vol. 7(3), pages 83-101, gennaio.
  2. Collewaert, V. & Manigart, S. & Rudy Aernoudt, 2007. "An assessment of government funding of business angel networks: a regional study," Vlerick Leuven Gent Management School Working Paper Series 2007-16, Vlerick Leuven Gent Management School.
  3. Cécile Carpentier & Jean-Marc Suret, 2009. "Investir dans des titres de petite capitalisation : le cas de la Bourse de croissance TSX," CIRANO Working Papers 2009s-07, CIRANO.
  4. Yung, Chris & Çolak, Gönül & Wei Wang, 2008. "Cycles in the IPO market," Journal of Financial Economics, Elsevier, vol. 89(1), pages 192-208, July.
  5. Cécile Carpentier & Jean-François L'Her & Jean-Marc Suret, 2008. "Stock Exchange Markets for New Ventures," CIRANO Working Papers 2008s-12, CIRANO.
  6. Cécile Carpentier & Jean-Marc Suret, 2009. "The Survival and Success of Canadian Penny Stock IPOs," CIRANO Working Papers 2007s-28, CIRANO.
  7. Carsten Burhop & David Chambers & Brian Cheffins, 2011. "Is Regulation Essential to Stock Market Development? Going Public in London and Berlin, 1900-1913," Cologne Economic History papers 10, University of Cologne, Department of Economic and Business History, revised Mar 2011.
  8. Ting-Kai Chou & Jia-Chi Cheng & Chin-Chen Chien, 2013. "How useful is venture capital prestige? Evidence from IPO survivability," Small Business Economics, Springer, vol. 40(4), pages 843-863, May.
  9. Cécile Carpentier & Jean-Marc Suret, 2009. "The Canadian Public Venture Capital Market," CIRANO Working Papers 2009s-08, CIRANO.
  10. Carsten Burhop & Thorsten Luebbers, 2011. "The design of licensing contracts: Chemicals, Pharmaceuticals, and Electrical Engineering in Imperial Germany," Cologne Economic History papers 11, University of Cologne, Department of Economic and Business History, revised Jun 2011.
  11. Cécile Carpentier & Douglas Cumming & Jean-Marc Suret, 2010. "The Valuation Effect of Listing Requirements: An Analysis of Venture Capital-Backed IPOs," CIRANO Working Papers 2010s-01, CIRANO.
  12. Carpentier, Cécile & L'Her, Jean-François & Suret, Jean-Marc, 2010. "Stock exchange markets for new ventures," Journal of Business Venturing, Elsevier, vol. 25(4), pages 403-422, July.
  13. In Heo & So Sohn & Eun Ji, 2014. "Effects of the matching fund program on IPO and bankruptcy of SMEs in Korea," Small Business Economics, Springer, vol. 42(1), pages 117-129, January.
  14. Cécile Carpentier & Jean-Marc Suret, 2011. "The survival and success of Canadian penny stock IPOs," Small Business Economics, Springer, vol. 36(1), pages 101-121, January.
  15. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 1-20.
  16. Cécile Carpentier & Jean-Marc Suret, 2009. "Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis," CIRANO Working Papers 2009s-10, CIRANO.
  17. Carsten Burhop & David Chambers & Brian Cheffins, 2011. "Is Regulation Essential to Stock Market Development? Going Public in London and Berlin, 1900-1913," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_15, Max Planck Institute for Research on Collective Goods.
  18. Kim, Irene & Skinner, Douglas J., 2012. "Measuring securities litigation risk," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 290-310.

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