IPOs of Loss-making Companies

Abstract: During the late '90s loss-making companies started going public to a greater extent than ever before. Some argue dubious motives were the reason behind this. This paper aims to shed light on the motives behind U.S. loss-making companies' decision to go public and how these companies perform operationally following the three and five years after their initial public offering, during the period 1982 to 2010. We find statistical significant results that these companies outperform their industries in terms of revenue growth, but not in terms of return on assets. This indicates that loss-making companies went public with motives of company growth rather than motives of selling the company.