The Extent and Duration of Analysts' Optimistic Expectations of Initial Public Offer Firms

Abstract

We examine analysts' implied expected rates of return for recent IPO firms relative to more seasoned firms. We document that analysts have relatively more optimistic expectations about recent IPO firms relative to seasoned firms, and these optimistic expectations persist, on average, for four years following the IPO. We also document that the market has optimistic expectations for recent IPO firms relative to more seasoned firms, but only for the first year following listing. Our results are robust to controls for industry, size, book-to-market, the age of the firm, analysts' expected long-term growth, the number of analysts following the firms, the level of dispersion in analysts' forecasts, and external financing activities. Our results suggest that analysts' retain optimistic expectations regarding recent IPO firms relative to more seasoned firms for an extended period of time after the IPO event.

Keywords: IPOs, analysts expectations

JEL Classification: G65