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We find evidence that the underperformance of some IPOs, and firms in concentrated industries, have common empirical roots. The most likely explanation for both is a confluence of two well known rational theories, which predict that: (1) entrepreneurs in concentrated industries optimally time their IPOs to coincide with a transition from growth to value (Maksimovic and Pichler (2001)); and (2) the increase in systematic risk associated with this transition generates lower returns (Pastor and Veronesi (2005)). We confirm this link using several tests based on specific portfolio returns, changes in systematic risk, unexpected real cashflows, and the characteristics of firms going public. In addition, we present new evidence of return predictability, and a new explanation for the role VC-backing plays in long-term IPO performance.

Growth to Value: A Difficult Journey for Ipos and Concentrated Industries