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Digging for fool’s gold : an empirical study on factors affecting initial stock performance of venture capital-backed IPOs

Røttingsnes, Kaja; Gjærum, Jonas Lier
Master thesis
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URI
https://hdl.handle.net/11250/2645164
Date
2019
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  • Master Thesis [4657]
Abstract
We analyze the performance of venture-backed IPOs on the New York Stock Exchange and

Nasdaq between 2011 and 2019. Throughout this period, a large number of venture-backed

tech companies with billion-dollar valuations have gone public, and many have experienced

significant valuation cuts during their first months of trading.

By using multiple regression analysis and the Mann-Whitney U test, we find evidence

of a positive relationship between offer size and first-day returns. We also find that

tech companies and unprofitable companies achieve higher first-day returns than other

companies. When looking at the three months after the first day of trading, the analyses

indicate opposite effects, and we find that unprofitable tech companies going public achieve

significantly lower returns than other companies. However, results for the three-month

time period are in general less conclusive than those for the first-day of trading. Contrary

to our hypothesis, the amount of pre-IPO funding does not seem to affect aftermarket

performance.

We analyze the performance of venture-backed IPOs on the New York Stock Exchange and

Nasdaq between 2011 and 2019. Throughout this period, a large number of venture-backed

tech companies with billion-dollar valuations have gone public, and many have experienced

significant valuation cuts during their first months of trading.

By using multiple regression analysis and the Mann-Whitney U test, we find evidence

of a positive relationship between offer size and first-day returns. We also find that

tech companies and unprofitable companies achieve higher first-day returns than other

companies. When looking at the three months after the first day of trading, the analyses

indicate opposite effects, and we find that unprofitable tech companies going public achieve

significantly lower returns than other companies. However, results for the three-month

time period are in general less conclusive than those for the first-day of trading. Contrary

to our hypothesis, the amount of pre-IPO funding does not seem to affect aftermarket

performance.

Keywords – NHH, master thesis, initial public offerings, venture capital

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