The Long Term Operating Performance of IPOs Based on Industry and its Effects on IPO Volume

In this project we look at the long run performance of IPOs based on their ability to remain profitable and to grow their profitability. We look at the IPOs from a different angle than previous works in that we look at the operating performance of IPOs that have been classified in to several main industries (Energy, Finance/Marketing/Consulting, Food & Beverage, Healthcare/Biotech, Logistics, Manufacturing, Retail and Technology). We look at 155 different IPO firms that were issued between 2000 and 2003 and their net income growth over a period of 9 years. First we split up the firm’s performance into 3-year blocks. In each block we observe which firms remain profitable and which do not in each block and which industries these firms usually belong to. Next we split up the firms into groups of ‘Winners’ and ‘Losers’ and perform case studies on the biggest winner and loser firms and their industry. We will attribute their performance to the effects of one of the biggest problems an IPO firm has in its initial years —the principal-agent problem. We will also look at various macroeconomic factors which might have affected the industry that the ‘winning’ and ‘losing’ firms belonged to. Lastly, the primary objective of this project is to see how the operating performance of the IPO firms affects the number of new IPO issues in the year following a 3 year block (i.e. if the initially observed IPO firms were observed between the years t1, t2, and t3 then how many new IPOs were issued in the year t4). We will not only look at this from the perspective of the entire IPO sector but will also observe in which industries the IPO issuing decision is most affected by previous long run IPO performance. In our finding we see that in almost all industry sectors, IPO issuers take previous performance of IPOs of that particular sector into significant consideration before issuing new IPOs. This is important as it allows us to predict with some accuracy the number of firms that will issue an IPO from a specific sector in the following year based on previous 3-year 5 performance of IPOs. Operating performance of IPOs in various sectors, however, is by no means the only factor affecting IPO issuing and our results indicate as such, but it is beyond the scope of this project to conduct experiments on all of those other factors