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IPO Prospectus Information and Subsequent Performance
Author(s) -
Bhabra Harjeet S.,
Pettway Richard H.
Publication year - 2003
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/1540-6288.00051
Subject(s) - prospectus , initial public offering , merge (version control) , equity (law) , business , stock (firearms) , monetary economics , econometrics , accounting , finance , economics , computer science , engineering , mechanical engineering , political science , law , information retrieval
Initial public offerings underperform in the long run; however, there is very little evidence on their cross‐sectional variation. Using a random sample of IPOs from 1987 through 1991 and gathering their prospectus data, we show that financial and operating characteristics as well as offering characteristics have a limited relation with the one‐year stock returns. We also find that firms that subsequently reissue equity or merge outperform their matched‐firm benchmarks over three years. Underperformance is most severe for the smaller and younger firms. We find that prospectus information is more useful to predict survival/failure compared to subsequent equity offerings or acquisitions.