The authors investigate the long-run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture-backed IPOs from 1972 to 1992 and 3,407 nonventure-backed IPOs from 1975 to 1992. They find that venture-backed IPOs outperform nonventure-backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure-backed IPOs. In tests using several comparable benchmarks and the Fama-French (1993) three factor asset pricing model, venture-backed companies do not significantly underperform, while the smallest nonventure-backed firms do. Underperformance, however, is not an IPO effect. Similar size and book-to-market firms that have not issued equity perform as poorly as IPOs.

We investigate the long‐run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture‐backed IPOs from 1972–1992 and 3,407 nonventure‐backed IPOs from 1975–1992. We find that venture‐backed IPOs outperform non‐venture‐backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure‐backed IPOs. In tests using several comparable benchmarks and the Fama‐French (1993) three factor asset pricing model, venture‐backed companies do not significantly underperform, while the smallest nonventure‐backed firms do. Underperformance, however, is not an IPO effect. Similar size and book‐to‐market firms that have not issued equity perform as poorly as IPOs.

We investigate the long-run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture-backed IPOs from 1972–1992 and 3,407 nonventure-backed IPOs from 1975–1992. We find that venture-backed IPOs outperform non-venture-backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure-backed IPOs. In tests using several comparable benchmarks and the Fama-French (1993) three factor asset pricing model, venture-backed companies do not significantly underperform, while the smallest nonventure-backed firms do. Underperformance, however, is not an IPO effect. Similar size and book-to-market firms that have not issued equity perform as poorly as IPOs.