The Long-Run Performance of IPOs in Italy: A Comparison of Venture and Non-Venture-Backed Companies

The phenomena associated with the performance of newly listed companies has increased the interest of many researchers who have developed a vast literature on long-term underpricing and underperformance, which together with hot and cold issue markets, represent the three anomalies that have always accompanied with Initial Public Offerings (IPOs). The objective of this work is to investigate the long-run performance of IPOs of venture and non-venture-backed companies. The analysis of a sample of 102 IPOs carried out in Italy in 1998-2005 revealed that both companies (venture-backed and non-venture-backed) showed negative values, thus, confirming the phenomenon of underperformance. During the 36 months following their listing, venture-backed companies seemed to register negative and statistically significant values both with the CARsVB methodology (-93.99%) and the Buy and Hold Abnormal Returns methodology (BHARsVB -88.37%). Venture-backed companies, unlike nonventure- backed companies, seem to be able to restrain the losses, measured by both methods, in the first 12 months (CARsVB -12.38% -20.15% CARsNVB; BHARsVB -10.17%; BHARsNVB -15.51%). During the 36 months, however, the IPOs showed negative and statistically significant values regardless of whether they were venture or non-venture-backed. The test on the difference between the average abnormal returns of the two methodologies (CAARS and BHAARs) did not produce statistically significant results. The Wealth Relative was calculated and from the results it would appear that the portfolio of venture-backed IPOs does not register “brilliant” performances. The portfolio of 102 IPOs does not seem to beat the “market portfolio”. In conclusion, therefore, the phenomenon of underperformance seems to be real in our country and is documented by strongly negative and statistically significant values obtained from the samples of IPOs analyzed.