| This is the first paper examining the relation between IPO misvaluation calculated from regression and comparable firm approaches, and the quantity of IPO shares sold immediately after the IPO, an action called “flipping,” and it illustrates how flipping predicts long-term IPO performance. The result is believed to be of considerable interest to investment practitioner. The dataset includes sample IPOs from 1993 to 2001 that covers before, during and after the Internet bubble period. First, flipping can be predicted by misvaluation, opening-day return and the size of IPO issue. IPOs with low misvaluation, high opening-day return and large size have low flipping. Moreover, I find that high-flipped IPOs outperform low-flipped IPOs first six-month after the issue; however, high-flipped IPOs underperform low-flipped IPOs from the second sixth-month until the third year. In addition, the result implies that low-flipped IPOs with low misvaluation outperform high-flipped IPOs with high misvaluation in the long run (three years in this study). In conclusion, this paper suggests to investors that they buy IPOs with low misvaluation, high opening-trade return and large size because such IPOs have low flipping. These low-flipped IPOs have better performance than high-flipped IPOs over the long-term. |
