Open AccessPredicting First-Year Returns Of Health Care IPOs
Author(s) -
Richard Borghesi,
Tom Pencek
Publication year - 2013
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v29i3.7788
Subject(s) - initial public offering , accrual , business , quartile , predictability , cash , unavailability , metric (unit) , econometrics , accounting , economics , finance , statistics , earnings , mathematics , marketing , confidence interval
Prior empirical work shows that IPOs generally earn positive excess first-day returns yet subsequently underperform. Many researchers examine the determinants of post-first-day IPO success, however, these studies do not test for first-year IPO return predictability due to unavailability of pre-IPO data with which to predict first-year performance. In this study we utilize strictly pre-IPO financial data manually obtained from corporate IPO registrations to predict the first-year post-IPO performance of health care firms. We do so by utilizing firm size, free cash flows, discretionary accruals, and Altmans Z. Results suggest that each metric is a significant determinant of first-year raw cumulative and excess cumulative returns, and we are able to reliably identify which firms will be in the top and bottom performance quartiles 30 days, 6 months, and 12 months after the IPO.