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Long-run performance of IPOs and the role of financial analysts: some French evidence

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  • Boissin, Romain
  • Sentis, Patrick

Abstract

This paper examines the long-run performance of French initial public offerings (IPOs) carried out between 1991 and 2005. Using various methodologies, we found that IPOs in our sample performed poorly relative to the comparison portfolios over the 1991–2005 horizon in contrast to that reported by prior studies of the French market. This abnormal long-run performance is more severe for orphan IPOs (those without financial analysts’ recommendations) than for non-orphan IPOs the first year following the offerings (a statistically significant difference). In contrast to the widely held belief, this evidence suggests that analyst coverage is indeed not important to the issuing firm. Investors pay more attention to non-orphan IPOs when they are not book built, venture capital backed, underwritten by a large syndicate and less underpriced. Over the 1991–2005 period, an analyst’s affiliation does not appear to matter. This result is inconsistent with the conflict of interest hypothesis. During the first year of issuance, analysts’ recommendations are associated with the success of a newly public firm. However, once we extend the horizon to 3 or 5 years after the issuance, we can find that analysts’ recommendations are not significantly related to the long-run performance of IPOs.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41551.

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Date of creation: Apr 2012
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Handle: RePEc:pra:mprapa:41551

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Keywords: initial public offerings; financial analyst; long-run performance;

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  1. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  2. Alon Brav & Christopher Geczy & Paul A. Gompers, . "Is the Abnormal Return Following Equity Issuances Anomalous?," Rodney L. White Center for Financial Research Working Papers 02-99, Wharton School Rodney L. White Center for Financial Research.
  3. Daniel J. Bradley & Bradford D. Jordan & Jay R. Ritter, 2008. "Analyst Behavior Following IPOs: The 'Bubble Period' Evidence," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 101-133, January.
  4. Rajan, Raghuram & Servaes, Henri, 1997. " Analyst Following of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 52(2), pages 507-29, June.
  5. Ohad Kadan & Leonardo Madureira & Rong Wang & Tzachi Zach, 2009. "Conflicts of Interest and Stock Recommendations: The Effects of the Global Settlement and Related Regulations," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4189-4217, October.
  6. Daniel J. Bradley & Bradford D. Jordan & Jay R. Ritter, 2003. "The Quiet Period Goes out with a Bang," Journal of Finance, American Finance Association, vol. 58(1), pages 1-36, 02.
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