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Orphan versus non-orphan IPOs: the difference analyst coverage makes

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  • Boissin, Romain

Abstract

This paper examines the long-run performance of US IPOs carried out between 1991 and 2010. By using various methodologies, we find that IPOs in our sample performed abnormally relative to comparison portfolios over the 1991-2010 horizon. This abnormal long-run performance is much severe for orphan IPOs (without financial recommendation) than non-orphan IPOs from three to five-year horizon (statistically significant). The evidence suggests that analyst coverage is indeed important to issuing firm but the market does not fully incorporate the perceived value of this coverage. Further analysis reveals that this outperformance by non-orphan stems from high coverage. Investors pay more attention to non-orphan when IPOs have a large underwriting syndicate and are high underpriced. The difference between orphan and non-orphan subsists in VC backed or non VC backed IPOs and whatever the ownership structure of the IPOs. We establish that analyst coverage is significantly related to long-run performance of IPOs.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41542.

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Date of creation: Sep 2012
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Handle: RePEc:pra:mprapa:41542

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Keywords: IPOs; analyst coverage; long-run performance;

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  8. James, Christopher & Karceski, Jason, 2006. "Strength of analyst coverage following IPOs," Journal of Financial Economics, Elsevier, vol. 82(1), pages 1-34, October.
  9. Krigman, Laurie & Shaw, Wayne H. & Womack, Kent L., 2001. "Why do firms switch underwriters?," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 245-284, May.
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  12. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
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