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IPO performance and earnings expectations: some French evidence

IPO performance and earnings expectations: some French evidence

As seen in Table 1, all

As seen in Table 1, all ex ante firm-specific variables come from pre-IPO prospectuses. Lead underwriters are required to make those prospectuses available to potential investors approximately one month before the equity offering. Pre-IPO prospectuses must contain information about the history and prospects of the firm 2 . Three procedures are available to issuing firms: “Placement Garanti” (PG), is equivalent to the book-building procedure that prevails in the U.S., in which lead underwriters build a book with indications of interest by institutional investors, after which they choose an IPO price and allocate shares in a discriminatory manner. “Offre à Prix Minimal” (OPM) is an auction procedure, in which the underwriter’s role is much less important than in the previous mechanism. Under this auction procedure, the Paris Bourse collects price / quantity bids from investors and constructs a demand curve. Given this demand curve, the Paris Bourse proposes several prices among which the underwriter and the firm choose the IPO price. Once the price is chosen, the allocation is non-discriminatory: investors with bids at or above the IPO price and under an upper limit receive shares on a pro rata basis. The last procedure, “Offre à Prix Ferme” (OPF), is a fixed-price procedure that tended to disappear at the end of our study period 3 . Underwriter’s rank is calculated by comparing the number of deals in which each underwriter was the lead underwriter among the IPOs in our sample. We identified three possible Announced reasons for going public, each corresponding to a dummy variable. Goal-fina, goal-acqu and goal-exit are equal to 1 when the announced reason for going public is respectively to improve the firm’s financial structure, to acquire a company, or to allow the main shareholders to get out of the firm’s capital. One or more of those reasons can be invoked in the pre-IPO prospectuses. It is also possible that no reason was found, either 1 We also exclude transfers from “Le Marché Libre”, another exchange with very low liquidity, because we consider that those companies are not real IPOs since they already have a public history. 2 The requirements slightly differ depending on the exchange chosen. Firms that go public on the Nouveau Marché generally have a shorter history, and the disclosure requirements are higher in terms of prospects and lower in terms of history, compared to Second Marché offerings. 6

ecause this information was missing or because we did not have the prospectus in which they were announced. % of shares created is the ratio of the number of shares created at the time of the offering to the total number of shares sold in the IPO. Initial return (10 - day underpricing) is calculated as the return between IPO and the 10 th trading day following the offering. Market conditions are calculated for each IPO, following Derrien and Womack (1999), as the weighted average of monthly returns of the MIDCAC index over the 3-month period preceding the equity offering. Pre-IPO shareholding is summarized in 3 dummy variables, k-ventur, k-bank, and k-perso that are equal to 1 respectively if more than 10% of the shares are held by capital-venture funds, more than 10% of the shares are held by banks, and more than 90% of the shares are held by managers of the firm prior to the IPO. In section 6, we relate long-term performance and earning surprises relative to pre-IPO or analysts’ forecasts at or around IPO date, we use data coming from two I/B/E/S datasets. Those datasets and the variables we use are described in detail in that part of the study. 3. Descriptive statistics In Table 2, we present descriptive statistics on ex ante variables for the firms in our sample. The table has two parts. In the first one, variables are split by IPO year. This allows us to see how IPO firms have changed between 1991 and 1998. A general trend appears immediately: the number of IPOs per year increased a lot over this period, with some variations, from less than 7 on average in the first 3 years to 56 in the last 3. Variations in the number of offerings per year 3 For a more precise description of IPO procedures available on the French stock markets, see Derrien and Womack 7

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