Executive Summary:
The purpose of this paper is to determine the extent to which weaker firms that file for an initial public offering are filtered out of the process or, if successful in completing the process, can be identified by modeling the process. Using a sample of 3,941 IPO filings during 1995-2001, we find that firms surviving the IPO process are larger, older, have stronger financial ratios, and have stronger investor demand in the preoffering period than firms that withdraw. More importantly, we demonstrate that postoffering stock performance of firms surviving the process can be explained by separating the successful offerings based on these same characteristics. Firms predicted to withdraw from the process exhibit significantly weaker stock performance that the remaining IPOs in the first year of public operations. Also, we show that institutions and underwriters minimize their investments in these weaker firms. |
