Leverage, liquidity and IPO long‐run performance: evidence from Taiwan IPO markets

Abstract

Purpose – The purpose of this paper is to examine the long-run performance of initial public offerings (IPOs) in Taiwan with a five-factor model on a calendar time basis. Design/methodology/approach – Besides the Fama-French three factors, the paper also incorporates leverage and liquidity into the factor model to measure IPO five-year performance. The sample consists of 261 IPOs issued in Taiwan over-the-counter during 1991 and 2002. The actual data cover the period from January 1991 to December 2007. Findings – Contrary to findings of previous studies on US IPO markets, the paper finds that Taiwan IPOs experience better long-run performance than the market even after adjusting for the common factors in the capital markets. Originality/value – This paper argues that survival rate of Taiwan IPOs would be the reason why Taiwan IPOs do not underperform in the long run.