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An Investment Strategy Based on the Long-Run Performance of IPOs: Venture-Backed and Non-Venture-Backed Firms

Junming Hsu and Chia-Yu Chang
The Journal of Investing Winter 2008, 17 (4) 95-105; DOI: https://doi.org/10.3905/JOI.2008.17.4.095
Junming Hsu
is an associate professor at National Chung-Hsing University in Taiwan.
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  • For correspondence: jhsu@nchu.edu.tw
Chia-Yu Chang
is a senior officer at Hwa-Nan Financial Holding Corp., in Taiwan.
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  • For correspondence: u487491614@yahoo.com.tw
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Abstract

This study investigates the evolution and long-run performance of venture-backed and non-venture-backed firms after the initial public offerings (IPOs). We hypothesize that the entrepreneurial ability enables venture-backed firms to keep a good performance in the long run. The results show that firms underperform the market over the five years following the IPOs, with venture-backed firms outperforming non-venture-backed firms. About six years after the IPOs, however, firms still alive outperform the market, with venture-backed firms showing superior performance. We also find that venture-backed firms with glamour performance from year 2 to year 5 after the IPOs tend to maintain good performance from year 6 to year 9. This result supports our hypothesis that the entrepreneurial ability of venture-backed firms lasts for a long period. Putting these results together, we suggest that holding a portfolio consisting of glamour venture-backed stocks listing for about six years is a profitable strategy.

TOPICS: Performance measurement, portfolio construction, statistical methods

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An Investment Strategy Based on the Long-Run Performance of IPOs: Venture-Backed and Non-Venture-Backed Firms
Junming Hsu, Chia-Yu Chang
The Journal of Investing Nov 2008, 17 (4) 95-105; DOI: 10.3905/JOI.2008.17.4.095

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An Investment Strategy Based on the Long-Run Performance of IPOs: Venture-Backed and Non-Venture-Backed Firms
Junming Hsu, Chia-Yu Chang
The Journal of Investing Nov 2008, 17 (4) 95-105; DOI: 10.3905/JOI.2008.17.4.095
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    • Abstract
    • DATA
    • LONG-RUN PERFORMANCE OF THE IPO FIRMS
    • CONTRARIAN STRATEGIES APPLIED TO IPO FIRMS
    • CONCLUSION
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