The Reality of IPO Performance: An Empirical Study of Venture-Backed Public Companies
AbstractThe 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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Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-030.
Length: 24 pages
Date of creation: 01 Jul 2004
Date of revision:
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 and Methodology: General - - - Hypothesis Testing: General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- 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; Corporate Finance and Governance
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-02 (All new papers)
- NEP-CFN-2005-01-02 (Corporate Finance)
- NEP-INO-2005-01-02 (Innovation)
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.:
- Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
- Yochanan Shachmurove, 2001. "Annualized Returns of Venture-Backed Public Companies Categorized by Stage of Financing: An Empirical Investigation of IPOS in the Last Three Decades," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 6(1), pages 44-58 , Spring.
- 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.
- Paul Gompers & Josh Lerner, 1998.
"Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital,"
NBER Working Papers
6847, National Bureau of Economic Research, Inc.
- Gompers, Paul & Lerner, Josh, 1999. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 1-28, April.
- Mansfield, Edwin, 1983. "Technological Change and Market Structure: An Empirical Study," American Economic Review, American Economic Association, vol. 73(2), pages 205-09, May.
- 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.
- Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
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