IPO Performance and Stochastic Dominance

We examine the performance of initial public offerings (IPO) using a stochastic dominance approach that captures investors’ preferences for higher moments of the returns distribution. Using a comprehensive sample of 6,671 IPOs in the U.S. from 1980 to 2012, we find no evidence that IPOs underperform size and book-to-market matched portfolios. We find that the market portfolios do not second-order stochastic dominate IPOs with VC-backing, backed by high reputation VCs, and low debt IPOs. We also examine the IPO performance in booms vs. recessions as well as in times of low vs. high sentiment. Overall, our results shed additional light on the role of investor preferences for higher order moments in IPO performance evaluation