Initial Public Offerings and Long-Term
Performance

Abstract

The initial public offer (IPO) market has come a long way since the very first public offering of shares by the United Dutch Chartered East India Company in 1602. Unfortunately, many of today’s IPOs suffer the same fate as the original IPO: They have an initial period of outperformance followed by a steady decline over the long term. This article explores some of the preliminary factors behind IPOs’ long-run losses and also explains why a value-based strategy outperforms higher-multiple issues over the long term.

TOPICS: Security analysis and valuation, performance measurement