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

  • Boissin, Romain
  • Sentis, Patrick

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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  8. William J. Wilhelm & Alexander Ljungqvist, 2002. "IPO Pricing in the Dot-com Bubble," OFRC Working Papers Series 2002fe07, Oxford Financial Research Centre.
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  15. 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.
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  17. Richard B. Carter & Frederick H. Dark & Ajai K. Singh, 1998. "Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks," Journal of Finance, American Finance Association, vol. 53(1), pages 285-311, 02.
  18. Somnath Das & Re-Jin Guo & Huai Zhang, 2006. "Analysts' Selective Coverage and Subsequent Performance of Newly Public Firms," Journal of Finance, American Finance Association, vol. 61(3), pages 1159-1185, 06.
  19. Francois Degeorge & Francois Derrien & Kent L. Womack, 2007. "Analyst Hype in IPOs: Explaining the Popularity of Bookbuilding," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1021-1058.
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  22. Michael T. Cliff & David J. Denis, 2004. "Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?," Journal of Finance, American Finance Association, vol. 59(6), pages 2871-2901, December.
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