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Long run performance of IPOs and the role of financial analysts: some French evidence

Boissin, Romain and Sentis, Patrick (2010): Long run performance of IPOs and the role of financial analysts: some French evidence.

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This paper examines the long run performance of French IPOs carried out between 1991 and 2005. By using various methodologies, we find that IPOs in our sample performed negatively relative to comparison portfolios over the 1991-2005 horizon, unlike prior studies applied to French market. This abnormal long run performance is much severe for orphans’ IPOs (without financial recommendation) than non orphans’ IPOs from one to three-year horizon (statistically significant). The evidence suggests that analyst coverage is indeed important to issuing firm but the market do not fully incorporate the perceived value of this coverage. Further analysis reveals that this outperformance by non orphan stems from high coverage. Investors pay more attention for non orphan when IPOs are venture capital backed, with a big underwriting syndicate and low underpriced. Over the 1991-2005 period, analyst’s affiliation does not appear to matter. This result is inconsistent with the conflict of interest hypothesis. We establish that analyst recommendations are significantly related to long run performance of IPOs. Then we corroborate the crucial role of financial analysts in producing and interpreting IPOs’ financial releases.

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