The Long-Run Performance of Swedish IPOs : Explained in terms of Firm Maturity

Abstract: This paper examines the long-run aftermarket performance of Swedish IPOs between 2000- 2016, including two market downturns (the burst of IT and housing bubble). The main objective is to investigate whether performance is explained in terms of firm maturity, which is the main contribution to existing literature. Hence, the final sample of 96 IPOs is ranked by the level of RE/TA ratio, a categorization defined by the life-cycle theory of dividend payouts proposed by DeAngelo et al. (2006). To assess the long-run performance of the different IPO portfolios, two methodologies are applied: BHAR and the Fama-French Three Factor regression. The main finding is that the Swedish IPOs underperform their benchmark reference portfolios 12, 24 and 36 months after the offering. Young IPOs, with low RE/TA, outperform on a one- year basis while no significant results were found for old IPOs with high RE/TA. On a longer term, young IPOs underperform their benchmarks while old IPOs outperform three years after the initial issue. There is no support that younger IPOs exhibit a higher level of underperformance in comparison to older IPOs in the long-run.