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Intangibles and their role in short-and long-run IPO performance

Kosteas-Kostaropoulos, A. (2007). Intangibles and their role in short-and long-run IPO performance. (Unpublished Doctoral thesis, City, University of London)


Previous studies have investigated the impact of R&D on long-run returns of seasoned companies and IPOs of all industries and of broad time intervals, thereby excluding all intangibles reported on the balance sheet, as well as goodwill. This thesis includes various identifiable intangibles during the “technology” or “Dot Com” IPO boom period from 1995 to 2000.

The objective has been to analyze IPO short- and long-run performance through measurement of intangibles and investigate their impact in valuations and returns comparing two separate samples with IPOs and seasoned companies of same size and industry respectively. Three specific issues were addressed: Do companies decide to go public when growth opportunities are at their highest, expressed in practice by higher IPO intangible intensity as compared to seasoned companies? Are intangibles valued differently in IPOs and seasoned companies? Does intangible intensity influence IPO short- and long-run abnormal returns?

The testing procedure for the three issues comprised five individual hypotheses comparing intangible intensities between IPOs and matching seasoned companies at the time of offer and three years later, investigating whether the issuer/market expenses or capitalizes R&D and MSGA costs of IPOs, comparing the magnitude of intangible valuations between IPOs and seasoned companies, as well as analyzing the effect of intangible intensity upon short- and long-run performance. Issues for further research are outlined.

Results are rather inconclusive demonstrating that the nature of the outcome depends on the definition of intensity as well as the time interval examined. There is certain evidence that IPOs show higher intangible intensities relatively to seasoned firms and that both capitalize their R&D expenses. It is clear that IPOs intangibles are valued higher than those of matching seasoned companies. Further, only in some cases intangible intensive IPOs show higher first day returns and a better market performance. As a result it is understood that IPOs may fail to reach higher growth opportunities and so their higher valuation may not necessarily be justified. Further, the short- and long-run return results of the study agree with literature in that excess returns may vary depending on what and how these are measured.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School
Bayes Business School > Bayes Business School Doctoral Theses
Doctoral Theses
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