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Determinants of Post-IPO Performance of Stock

Student: Shiryaev Andrey

Supervisor: Nikita Pirogov

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2019

In this paper we considered factors of post-IPO stock performance. The cross-sectional sample of 310 US companies, which made IPO in the period from 2010 to 2016 years, was taken. Considered firms were from different industries and had different financial performance. We hypothesized that aftermarket stock returns depend on financial indicators which can be extracted from financial statements, and valuation multiple. P/E, P/S and others ratios as well as different profit margins are among considered variables. Moreover, we were interested to test whether there is a momentum effect within 6 months period. We used regression analysis with stock returns as a dependent variable and our hypothesized variables as explanatory, together with controls. For stock returns we considered different time setups: from IPO price to open, to close, to week, to 1 month, 2 months, 3 months and 6 months. In order to test for momentum effect, we calculated interim returns and used the same regression methodology augmented by momentum component. Our findings suggest that the most robust variable which is associated with post-IPO dynamics is gross margin which positively affects post-IPO share performance on different time frames. Besides, P/E and P/S ratios appeared to be significant and had positive effect which is consistent with existing literature. Return on equity was significant for longer time periods (i.e. 3 and 6 months) and positive, which coincided with our expectation and financial logic. Considering momentum regression, we found out a momentum effect for stock return from closing price of the first trading day to the end of 6-month period, where first trading day performance serves as a momentum signal.

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