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| Author: | Brav, A. Gompers, P. A. |
| Title: | Myth or Reqality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies |
| Journal: | Journal of Finance
1997 : DEC, Vol. 52:5, p. 1791-1821 |
| Index terms: | VENTURE CAPITAL PERFORMANCE MEASUREMENT BENCHMARKING |
| Language: | eng |
| Abstract: | We investigate the long-run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture-backed IPOs from 1972-1992 and 3,407 nonventure-backed IPOs from 1975-1992. We find that venture-backed IPOs outperform non-venture-backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure-backed IPOs. In tests using several comparable benchmarks and the Fama-French (1993) three factor asset pricing model, venture-backed companies do not significantly underperform, while the smallest nonventure-backed firms do. Underperformance, however, is not an IPO effect. Similar size and book-to-market firms that have not issued equity perform as poorly as IPOs. |
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