Current Issues in Economics and Finance

Pre-IPO Financial Performance and Aftermarket Survival

February 2004Volume 10, Number 2
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JEL classification: G3, G24 View PDF version
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Authors: Stavros Peristiani and Gijoon Hong

Many commentators have portrayed the tech boom of the late 1990s as an era of unprecedented deterioration in the quality of firms undertaking initial public offerings. But as far back as the early 1980s, firms seeking to go public were displaying signs of financial weakness, and the failure rate of issuers was on the rise. An analysis of the likelihood of failure among IPO firms in 1980-2000 suggests that pre-issue profitability is a good predictor of aftermarket survival.