University of Florida Study Demonstrates an Uptick of Unprofitable Companies in 2018 Filing IPOs
From the Desk of Jim Eccleston at Eccleston Law LLC:
University of Florida finance professor, Jay Ritter has released a study examining the financial health of companies in 2018 before they filed Initial Public Offerings (IPOs) and compared the data to other years dating back to 1980.
Overall, the study has demonstrated that this year so far has had the highest percentage of money-losing companies filing IPOs. More specifically, according to the study, 83 percent of U.S. companies that have gone public this year have been unprofitable in the 12 months leading up to their IPOs. Significantly, the only year where this percentage was comparable to 83 percent, was 2000, at the height of the dot-com bubble.
The University of Florida study also examined how unprofitable companies fared years after their IPOs were filed. The study found that between 2001 and 2016, money-losing companies fared worse in the long run. The study established that the 3 years after the money-losing companies filed their IPOs, they underperformed the market by 9.7 percent. In contrast, companies that were profitable before their IPOs profited several years after, at an average of 30.4 percent.
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