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The Reality of IPO Performance: An Empirical Study of Venture-Backed Public Companies

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Author Info
Yochanan Shachmurove () (The City College of The City University of New York and the University of Pennsylvania)

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Abstract

The incredible profits of Initial Public Offerings have often been emphasized in the media as a popular investment for the public. This paper takes a few steps towards refuting such an assertion by investigating the performance of 2,895 venture capital backed IPOs between 1968 and September 1998. The paper finds that it is incorrect to assume that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures in different sectors of the economy. The mean rates of return are found to be, in practice, very moderate, and often, negative.

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Publisher Info
Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-030.

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Length: 24 pages
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:pen:papers:04-030

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Related research
Keywords: Initial public offering; venture capita; annualized and cumulative rates of return; Information Technology; Medical; Health and Life Science; Non-High Technology; Biotechnology; Communications; Computer Industry; Semiconductor and Other Electronics Industries;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G3 - Financial Economics - - Corporate Finance and Governance
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March. [Downloadable!] (restricted)
  2. Gompers, Paul & Lerner, Josh, 1999. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," Journal of Law & Economics, University of Chicago Press, vol. 42(1), pages 1-28, April.
    Other versions:
  3. Mansfield, Edwin, 1986. "The R&D Tax Credit and Other Technology Policy Issues," American Economic Review, American Economic Association, vol. 76(2), pages 190-94, May. [Downloadable!] (restricted)
  4. Mansfield, Edwin, 1983. "Technological Change and Market Structure: An Empirical Study," American Economic Review, American Economic Association, vol. 73(2), pages 205-09, May. [Downloadable!] (restricted)
  5. Mansfield, Edwin, 1969. "Industrial Research and Development: Characteristics, Costs, and Diffusion of Results," American Economic Review, American Economic Association, vol. 59(2), pages 65-71, May. [Downloadable!] (restricted)
  6. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September. [Downloadable!] (restricted)
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