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.