IPO Performance and the Size Effect: Evidence for the US and Canada

Lorne N. Switzera,* and Xinkai Zhaia

May 2019

Abstract

This study investigates the interaction between firm size and IPO underpricing in the US and
Canadian markets between the years 2007-2016. We find a size effect on IPO underpricing
in both Canada and the US, which is larger for Canadian firms. Canadian small firms show
more underpricing than US small firms (19.32% vs. 13.87%). Large Canadian firms also
exhibit more underpricing than their US counterparts over the sample period (12.83% vs.
10.09%). A size effect on performance is not apparent for holding periods beyond six months
from the IPO in both countries, consistent with seasoning effects that reduce information
asymmetries across firms over longer investment horizons.

Keywords: IPO performance; size effects; short-term information asymmetries; country

variations

JEL Classifications: G01, G11, G12, G14, G15, G20, G24; G30, G38

*Corresponding author
a
Finance Department, John Molson School of Business, Concordia University, Montreal,
Quebec, CANADA. . [Please address all correspondence to: Lorne N. Switzer, Van Berkom
Endowed Chair of Small-Cap Equities, John Molson School of Business, Concordia University,
1455 De Maisonneuve Blvd. W., Montreal, Quebec, CANADA H3G 1M8; tel.: 514-848-
2424,x2960(o);
E-mail: Lorne Switzer: [email protected]; Xinkai Zhai: [email protected]
Introduction

Initial Public Offerings (IPOs) are significant events in the evolution of new firms, when their

shares are first sold to institutional and retail investors to be subsequently traded on one or

more stock exchanges. They provide new equity capital for investment in firms’ projects,

allow founders and private equity investors a means to capture some of the returns from their

initial stakes in the firm. Furthermore, they facilitate liquidity for current and future investors,

which is useful for expanding the firm’s investor base, as well as for raising capital as the

company grows. IPO’s have puzzled researchers for at least half a century. 1 The pioneering

studies of Ritter (1984,1987) spotlight the IPO underpricing phenomenon, of high first day

returns (from the offer price to the first day closing price) for IPO’s. Over the period 1980-

2018, Ritter et al. (2018) show significant IPO underpricing in the US, averaging 18.4%

returns based on proceeds-weighted portfolio and 17.9% based on equally-weighted portfolio.

This suggests that there may be a negative size effect, given that equal weighted portfolios

attach more consideration to small firms. Whether this is due to the distribution of IPO’s

(e.g. micro-caps vs. traditionally defined small caps vs. mid-sized companies) is a largely

unexplored question. Indeed, based on pre-IPO sales of the underlying companies, higher

first day returns are observed for smaller companies. In particular, over the period, 1980-

See e.g. Stoll and Curley (1970) Logue, Ibbotson (1975), Baron (1982) Ritter (1984,1987) Rock (1986),
1

Beatty and Ritter (1986), Benveniste and Spindt (1989), Alon and Brav (1997), (Mok and Hui, 1998) Loughran
and Ritter (1992,2002), Jain and Kini (1994), Benveniste, Ljungqvist, Wilhelm, and Yu (2003), Kooli and
Suret (2002), Kryzanowski, Lazrak and Rakita (2005), Chemmanur and Paeglis (2005), Ljungqvist (2007),
Lowry, Officer and Schwert (2010), and Switzer and Bourdon (2011), and Bartlett, Rose and Solomon (2017).

1
2016 first day IPO returns are on average 18.6% (8.6%) for firms with pre-IPO sales less

(greater) than $1 billion. 2 For Canada, where IPO’s are comprised of smaller firms than in

the US, IPO underpricing over the period 1987-2017 is found to be more modest, averaging

5.6%. 3

This paper provides new evidence for Canada and the US on the phenomenon of IPO

underpricing, the high returns from the initial offering price to the first day closing price as it

relates to firm size. Ritter (1984) posits that size should play a role in IPO underpricing, as it

proxies for ex ante uncertainty about the firm’s prospects. This can explain the high ex post

first day returns for small firms based on sales shown in the Ritter data. Ljunquist (2007)

suggests that informational effects, especially informational asymmetries are overriding

factors in explaining IPO underpricing. More recently, Lowry, Officer and Schwert (2010)

buttress this approach. They show that small, young, high-tech, VC-backed, NASDAQ firms

experience higher IPO underpricing. In other words, higher IPO underpricing for small firms

may be risk related: simply put, small companies have prospects that are difficult to value,

and should command higher returns to compensate for this risk. 4 Fama and French (1993,

2015, 2018) include a size factor in their model for stock returns, as a fundamental factor that

is a reasonable proxy for expected cash flows. Indeed, the Fama and French size factor

2
https://site.warrington.ufl.edu/ritter/ipo-data/
3
Canada’s first-day IPO returns are derived from Ritter https://site.warrington.ufl.edu/ritter/ipo-data/ and
extend the series of Kryzanowski, Lazrak and Rakita (2005),Kooli and Suret (2002) show less underpricing in
Canada relative to the US for the period 1997-1999.
4
See Rock (1986), Beatty and Ritter (1986), Benveniste and Spindt (1989) and Lowry, Officer and Schwert
(2010).
2
(SMB) on Ken French’s database, over the period July 1963-January 2019 shows an average

annual excess return for small caps of 2.92%. We reexamine the question of higher initial

returns for smaller firms using more recent data for the US and provide new evidence on this

score for Canada. We also provide some new evidence on the role of firm size as it relates to

the question of longer horizon performance of IPOs in the US and Canada. In addition to re-

examining the role of firm size in short run and longer run IPO performance, we also

incorporate uncertainty factors affecting IPO returns as in Lowry, Offer, and Schwert (2010).

Furthermore, we consider the role of internal governance mechanisms in explaining IPO

initial returns and long-term IPO performance.

We find that on average, smaller firms have higher IPO underpricing in both the US and

Canada. We also find that holding constant firm size, CEO dominance and size of top

management team are negatively related to IPO underpricing in the US, but not in Canada.

We do not find a differential size effect on the performance of firms beyond a six-month

horizon from the IPOs for Canada or the US, consistent with a seasoning effect that reduces

the information asymmetries across firms.

The remainder of the paper is organized as follows; Section 2 will provide a brief review of

the literature and present the hypotheses for testing. A description of the data and the

methodology are provided in section 3. The results follow in section 4. This paper concludes

with a summary in section 5.

3
2. Literature Review and Hypotheses

IPO underpricing has been a fairly well-established empirical regularity in the literature over

the years. The recent literature has sought to identify factors associated with this

phenomenon. Ljunquist (2007) summarizes the literature into four approaches: a) focusing on

the role asymmetric information – in particular where informed investors (e.g. institutions)

earn the bulk of the gains at the initial allocations, at the expense of uninformed (e.g. retail)

investors; b) looking at the role of institutions: e.g. threats of lawsuits, the effects of

investment banks in price stabilization, and tax effects; c) control effects: how underpricing is

a means to entrench the positions of founding shareholders; d) behavioral – particularly the

role of shareholder irrationality as prices are bid up to levels well above fundamental

valuation. He concludes that the bulk of the evidence supports the a), the informational

approach. In particular, consistent with Rock (1986) winners’ curse, he suggests that

a) most of the underpricing-related gains accrue to informed (or at least institutional)

investors; uninformed (or at least retail) investors earn little or no excess returns from

investing in IPOs. Furthermore, informed investors affect the investment bank’s choice of

offer price; and

b) underpricing across firms increases in the ex-ante uncertainty surrounding a firm’s

valuation.

Our paper focuses on b), the role of ex ante uncertainty across firms. Our proxy for

uncertainty is firm size.

The “small firm effect,” whereby small cap firms earn higher risk adjusted returns than large

cap firms have received considerable attention since Banz (1981), Reinganum (1981), Keim
4
(1983), Blume and Stambaugh (1983), and more recently Switzer (2010). Switzer (2012,

2013) looks at the time varying nature of the small cap premium and show that it is related to

the default risk premium. All of the variants of Fama and French (1993, 2015, 2018) factor

models, incorporate the size factor (SMB) to capture market fundamentals, as reflected in

long run outperformance of small firms over long periods of time. Ritter (1984) states that

size should play a role in IPO underpricing: to the extent that smaller firms are exposed to

higher ex ante uncertainty, they should be expected to have greater underpricing/higher first

day returns. This result is also shown by Lowry, Officer and Schwert (2010), who show

higher average initial returns and variability of initial returns are observed for smaller firms

that are more difficult to value.

Hypothesis 1: Smaller firms in Canada and the US will have greater IPO underpricing

as reflected in first day returns

While short-term IPO underpricing is fairly well-established phenomenon in most markets,

the longer-term performance of IPO’s is a matter of some controversy. Ritter (1991) and

Loughran and Ritter (1995) provide evidence that IPO’s underperform in the long run in the

US. Gompers and Lerner (2003) and Schultz (2003) dispute this result on methodological

grounds. 5 Kooli, L’Her and Suret (2003) show that underpriced IPOs in Canada outperform

in the long run, especially growth and financial sector IPOs. The role of firm size in longer

term IPO performance has not received significant attention in the literature. To the extent

that information asymmetries decline over time with seasoning of the IPO’s one might expect

5
The key point of contention is whether the analyses should be conducted in event time vs. calendar time.
5
that the gaps in performance between smaller firms and larger firms would decline over

longer horizons. In an early study, Stoll and Curley (1970) document a six month return

excess return of small IPOs over the S&P index of 42.4%, which might be indicative of a

positive size effect for extended horizons. Bartlett, Rose and Solomon (2017) show slightly

higher 3-year gross cumulative returns for large IPOs compared to small IPOs held by mutual

funds. With the increased speed of information transmission through time, one might expect

that seasoning effects might be observed for small IPO’s in general, not just those held by

mutual funds.

Hypothesis 2 Differential Performance between Small Firms and Large Firms will

diminish over longer investor holding periods.

As mentioned above, the long run performance of IPO’s in general has been a matter of

contention. Our paper will provide new evidence on this issue. Hypothesis 2 focuses on the

existence of a size effect, and extends the Bartlett, Rose and Solomon (2017) analysis to a

wider sample of US IPO’s, and for the first time to a sample of Canadian IPOs.

3. Data and Methodology

3.1 Description of the Data

The sample for the analyses consists of companies that are listed on the Amex-NYSE,

NASDAQ, and the Toronto Stock Exchange. The primary source for the IPO data is the SDC

Platinum database of Thomson Reuters Financial Securities new issue database and WRDS.

And only issuers of common stocks are considered. Data of management quality is taken

from the IPO prospectus available on SEDAR, Bloomberg and WRDs database. The Ritter

6
IPO database is used as a supplemental source for missing observations. The data from

SDC’s on IPO characteristics are cross-checked with Capital IQ data as well as data from the

Ritter IPO Database. The final sample consists of 4628 common stocks of firms with IPOs

between 2007 and 2016, which includes 2364 US stocks and 2234 Canadian stocks. The data

are winsorized to avoid and mitigate the effects of spurious extreme values.

In this paper, we use two criteria to measure firm size: market capitalization of firms at the

end of the first day of the IPO, and gross proceeds from the IPO.

The second criterion used for firm size is gross proceeds of IPOs (Bartlett, Rose and

Solomon, 2017). Small IPOs include IPO which received less than $54.4 million in gross

proceeds in Canada and the US adjusted for inflation. 6

3.2 Modeling the Determinants of IPO Underpricing and Performance over Longer Horizons

In addition to performing univariate analyses to examine differential IPO performance based

on size proxies to capture issue uncertainty, we also conduct regression analyses to provide a

multivariate perspective that incorporates the interactions between the independent variables.

In particular, we extend the models of Ritter (1984), Megginson and Weiss (1991),

Ljungqvist and Wilhelm (2003) Lowry, Offer, and Schwert (2010) to incorporate

governance/management quality features. The basic regression model used is as follows:

𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑡𝑡 = 𝑎𝑎0 + 𝑎𝑎1 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝑎𝑎2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝑎𝑎3 𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎4 𝑉𝑉𝑉𝑉 + 𝑎𝑎5 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 +

𝑎𝑎6 𝐻𝐻𝐻𝐻𝐻𝐻ℎ𝑇𝑇𝑇𝑇𝑇𝑇ℎ + 𝑎𝑎7 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝑎𝑎8 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑎𝑎9 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑡𝑡𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 (1)

6
The US inflation issues are measured in US inflation adjusted dollars; Canadian issues are measured in
Canadian inflation) dollars.
7
The dependent variable 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑡𝑡 is measured by abnormal returns for the IPO over 4

subperiods: i) first day returns for the IPO; ii) returns over the 4-week horizon subsequent to

the IPO; iii) returns over a horizon of 180 days after the IPO; iv) returns over a 1-year

horizon from the IPOs. First day returns measure IPO underpricing. It is the abnormal return

between the IPO offer price and the subsequent secondary trading market price. Abnormal

returns are measured as (𝑝𝑝𝑡𝑡 − 𝑝𝑝)/𝑝𝑝, where 𝑝𝑝 is the offering price and 𝑝𝑝𝑡𝑡 is the closing bid

price on the specific day observed of public trading.

We use three variables to capture size effects: i) gross proceeds in $MM (natural log) :

Lnproceeds ; ii) small firm vs. large firm : an indicator variable based on firm size by gross

proceeds, which equals to 1 if gross proceeds is greater than $54.4 MM, equals to 0

otherwise: Size_Dummy ; iii) Market capitalization in $MM(natural log), directly reflects

market scale of IPO firms: lnMV.

We also consider a number of control variables relating to the offerings characteristics that

are expected to affect IPO returns aside from firm size. The first is a proxy for valuation

uncertainty: the gross spread of the issue: Gross-spread. This variable captures to the fees (in

$MM) that underwriters receive for arranging and underwriting the offering. We conjecture

that higher gross spread should be associated with poorer performance of the IPO. We also

look at the effect of so-called ‘Money left on the table.’ This variable is measured as the

difference between the closing price on the first day of trading and the offer price multiplied

by the number of shares sold (in $MM). This variable is commonly viewed as another

measure of underwriter compensation and denoted in the analyses as: MVP. Loughran and

8
Ritter (2002) argue that high values of the MVP variable may represent excess compensation

for the services of analyst coverage; Hence this variable is expected to have a negative effect

on IPO returns. Venture capitalists are financial intermediaries investing in start-up

companies which provide capital to young high-technology firms that might have otherwise

gone unfunded (Gompers, 2007). Ivanov and Xie (2010) find evidence that venture capitalists

add value to start-up companies. Companies backed by venture capitalists tend to be riskier

and have higher valuations at the IPO than non-VC-backed ones. Venture capitalists of

issuing firms are frequently co-opted through the allocation of hot IPOs to their personal

brokerage accounts Ivanov and Xie (2010). Venture capitalists may thus have incentives to

work with the firms’ managers and key decision makers to choose lead underwriters with

reputations or leaving money on the table in IPOs. (Loughran, Ritter, 2004). Hence, venture

capital-backed IPOs are expected to have higher abnormal returns/ better performance across

investment horizons for US firms. On the other hand Amit, Brander, and Zott (1989) develop

a theoretical model that predicts that venture capitalists should be less effective in Canada,

than in the US, due in part to scale and seasoning effects. They conjecture that while venture

capitalists have advantages in dealing with informational problems than other investors, their

contributions should be more noticeable for larger IPOs with longer track records. A dummy

variable that captures venture capitalists in the analyses is VC which is set equal to 1 for

IPOs backed by venture capitalists and is equal to 0 otherwise.

Benveniste and Spindt (1989) show that asymmetric information between the issuer and

institutional investors may lead to IPO underpricing and strategic rationing, when firms issue

9
more than one class of shares. Extending their argument, we expect that IPOs with multiple-

class share structures are more likely to be underpriced. Firms’ share structures are identified

with a dummy variable Multi-class that is set equal to 1 if the firm has more than one class of

shares and 0 otherwise.

We also examine the effects of the technological sector of the IPO using a dummy variable

High-tech which equals one if the firm is in a high-tech industry (as defined by SDC), and

zero otherwise. Kim, Pukthuanthong- Le and Walker (2007) find that high-tech firms have

higher risk and uncertainty as reflected by higher price revisions and greater underpricing.

Lowry, Officer and Schwert (2010) also find greater underpricing for high tech firms

consistent with the hypothesis that the value of such firms is much more difficult to estimate,

since it is directly dependent on [uncertain] growth options. They also show that the

dispersion of returns is higher in IPO markets when High tech firms are more prevalent.

One might argue that over the longer term (horizons beyond one month), the greater risks of

default for high tech firms might be reflected in poorer performance.

Another control variable that we consider in the analyses of IPO performance is the Lockup

period. The Lockup period captures the time frame following the IPO in which insiders are

proscribed from selling stocks from their allotments. The most common Lockup periods are

90 days, 180 days, and 360 days. The Lockup period variable, Lockup is measured in days.

Aggarwal, Krigman and Womack (2002) develop a model in which managers strategically

underprice IPOs to maximize personal wealth from selling shares at lockup expiration. They

find that IPO underpricing is positively correlated with stock returns and insider selling at the

10
lockup expiration. Brav and Gompers (2003) note that Lockups serve several roles: a) to

prevent moral hazard problems: e.g. to commit managers to refrain from schemes such as

“pump and dump” whereby shares are sold after promoters have artificially bid up prices to

unsustainable levels; b) to signal of firm quality ; c) to permit underwriters to extract

additional compensation from firms. The empirical evidence on their effects is mixed.

Bradley, Jordan, Roten, and Yi (2001), Field and Hanka (2001) and Ofek and Richardson

(2003) find that lockup expirations result in a permanently increase in trading volume, and

statistically significant stock price declines of about 1.5%. Cao, Field and Hanka (2004)

suggest that lockup expirations improve market liquidity. The Lockup period variable,

Lockup is measured in days. On balance, we expect that lockup period has a positive effect

on IPO underpricing, but a negative effect on longer term performance, as insiders dispose of

their shares after the lockup period.

In addition, proxies for management quality are considered in our model for the determinants

of IPO returns. Switzer and Bourdon (2011) look at the effects of management quality on the

operating performance and Tobin’s Q of Canadian firms first in the first year from their IPO.

We focus on two variables from that study: a) CEO dominance over other team members

measured by the ratio of the CEO salary to the average salary of other members of the

management team and b) Size of top management team, defined as the number of managers

with the rank of vice-president or higher in the management team. Based on Fama and Jensen

(1983), the degree of CEO dominance is expected to have a negative relationship with the

stock market performance of the IPO’s. Team size effects might be less clear: while larger

11
teams might be deemed beneficial to the extent that they provide more diverse ideas to

members, they may suffer from problems of coordination. These effects might be country

specific, reflecting differences in industry distributions (see e.g. Chemmanur and Paeglis

(2005)). For reference purposes, we have provided definitions for all of the variables used in the

analysis in the Appendix.

4. Empirical Results

Table 1 and Figure 1 show the distribution of IPOs and average IPO underpricing of large

firms and small firms in the US and Canada for the period 2007-2016. In sharp contrast with

the US, most IPO’s in Canada are small (classification of gross proceeds), throughout the

sample period. However, with the exception of the financial crisis period (years of 2008-

2009), the proportion of small IPO’s increases in the U.S. over time. On average, IPO

underpricing is higher for small firms than large firms in the US and Canada. IPO

underpricing tends to peak in the years 2011-2014. After 2014, there is slight decline of IPO

underpricing in both the US and Canada. On average Canadian small firms exhibit more

underpricing than their US counterparts. IPO underpricing is fairly similar in both countries.

Large firms in Canada on average exhibit higher underpricing than their US counterparts over

the sample period (12.83% vs. 10.09%). Canadian small firms also show more underpricing

than US small firms (19.32% vs. 13.87%).

[Please insert Table 1 Here]

Table 2 shows the distribution of abnormal returns for IPO’s in the US and Canada classified

by firm size (measured by gross proceeds) over the sample period 2007-2016 for alternative

12
investment horizons (one day, 30 days, 180 days, and one year). In the US, larger IPO’s are

more prevalent than small IPO’s (1407 vs. 987), although the average returns for smaller

firms is higher for one day and 1-month horizons. In Canada, in contrast, small firms IPOs

predominate ((2145 vs. 121). and small firms have comparably larger abnormal returns than

large firms across all investment horizons.

[Please insert Table 2 Here]

4.1 Issue Characteristics of Small Firm IPOs vs. Large Firms IPOs

Table 3 shows the distribution of IPO issue characteristics classified by firm size groupings

(large vs. small based on gross proceeds) for US and Canadian firms over the period 2007-

2016. The columns tabulate IPO underpricing, Money on the table, Offer price, Gross spread

and Total assets. Money on the table is the difference of market value between the offer date

and the first day after offering. Gross spread is the total fees that underwriters receive for

arranging and underwriting an offering of equity securities. As might be expected, in both

countries, large firms have comparably higher offer prices, money left on the table, higher

gross spread and higher total assets. On the contrast, large firms have comparably lower

excess returns than small firms both in the US and Canada. On average, US small and large

firms leave money on the table than their Canadian counterparts.

[Please insert Table 3 Here]

Table 4 provides descriptive statistic of returns across different return horizons and firm/issue

size characteristics for Canadian and US IPOs over the period 2007-2016. Panel A (B) looks

at all Canadian (US) firms together. Panels C and E look at Canadian and US small firms,

13
respectively. Panels D and F look at Canadian and US large firms, respectively. Compared

Panel A with Panel B, Canadian firms have averagely higher excess returns in one day, 30-

day, 180-day than US firms. On average, small firms have better return performance than

large firms for all investment horizons (1-day, 30-day, 180-day, 1-year) for Canadian firms.

Large firms in the US have better returns after 180 days. For Canadian firms, the differential

initial IPO excess return between small firms and large firms is 18.96%-13.09% = 5.87%;

The differential of excess return for a 30-day horizon is 22.13%-12.54% = 9.59%; Over a

180-day horizon, the differential of excess return is 18.38%-10.12% = 8.26%; Over a one

year the differential is 17.91% - 7.73% = 10.18%. For US firms, the one-day differential of

excess return is 14.64% - 11.35% = 3.29%; differential for 30-days is 14.29% - 13.08% =

1.21%; differential for 180-day is 13.36% - 13.96% = -0.6%; differential for one year is

11.74%-12.67%=-0.93%. Compared with Canadian firms, the average differential of excess

return of US firms is smaller than for Canadian firms, and the average excess return of large

firms exceeds small firms in the longer period.

Furthermore, large firms have higher gross spreads than small firms in the US and Canada,

which means underwriters receive more fees for arranging and underwriting the offering.

Money left on the table are higher for large firms than small firms both in the US and

Canada. US small firms leave more money on the table than Canadian small firms (9.84M vs

3.03M), and US large firms leave 203.63M money on the table compared with 162.05M of

Canadian large firms.

[Please insert Table 4 Here]

14
Table 5 provides summary statistics for IPO’s returns across alternative investment horizons

according to firm and issue characteristics. Panel A shows results for US firms, while Panel B

reports the estimates for Canadian firms. On average, Canadian small firms that are in high

tech, VC-backed, with multi-class share structures, and have longer lockup periods have

better returns than their large counterparts for all investment horizons. US small firms that are

in high-tech and multi-share structures show better performance than US large firms only on

the first day of trading. With a 30-day holding period, US small firms in high-tech do not

perform better than US large firms in high-tech. US small firms with VC-backing and long

lockup periods do not show an obvious difference in returns with US large counterparts.

In both the US and Canada, firms that are in high-tech, VC-backed, with long lockup periods

outperform firms that are in non-high-tech, non-VC-backed, with short lockup period, while

there is no big gap between companies with multi-class shares vs. their single share class

counterparts.

[Please insert Table 5 Here]

4.2 Multivariate Analysis

Table 6 shows the Pearson Correlation statistics table for the US sample and Canadian

sample. Panel A shows the results for US sample, and Panel B shows the results for Canadian

sample. Multivariate variables in the OLS regressions have compared each other.

Correlations and directions among variables are quite similar for US and Canadian firms.

There is no strong linear relationship (correlation coefficient > 0.5 or < -0.5) among the

independent variables in the regressions.

15
 [Please insert Table 6 here]

Tables 7, 8 and 9 show the results of the multivariate regressions for IPO performance shows

the OLS regression results for the models of IPO performance given by equation (1) for the

US and Canada separately, based on alternative firm size proxies. 7

Table 7 reports the results using lnproceeds as a size proxy measuring firm size by natural

logarithm of gross proceeds. We find some interesting country differences in the analyses.

Consistent with our hypotheses, US firms, lnproceeds has a significantly negative effect on 1-

day and 30-day returns: in other words, smaller firms provide better performance based on

initial returns (consistent with Lowry, Officer and Schwert (2010)), and 30-day cumulative

abnormal returns than large firms; for the longer holding period of 180 days there is no

significant relationship between lnproceeds and IPO returns. For Canadian firms, a negative

size effect is observed across all holding periods, but it is not significant. Venture Capital

backing is positive and significant across all investment horizons in the US consistent Ivanov

and Xie (2010). VC backing in Canada is positive across all horizons, but not significant. For

US firms, consistent with Aggarwal, Krigman and Womack (2002), longer lockup periods are

positively and significantly related to short horizon returns (one day and one month). The

lockup period does not appear significant for Canadian firms. However, CEO dominance, as

reflected by the differential compensation to CEOs relative to other members of the

The regressions in each of these tables were also performed using year fixed effects. The results are very
7

similar to those reported here,and are available on request.

16
management team is significantly negatively associated with performance across all holding

periods, only for Canadian IPOs. Large management teams are detrimental to one month and

180-day performance measures for US firms, but not Canadian firms. Finally, ‘money on the

table’ (MVP) has a significantly negative effect on initial day performance for US firms,

consistent with Loughran and Ritter (2002). This effect is not observed for Canadian firms.

Gross Spread has a positive effect for one day returns in the US and Canada, although it is

not significant at conventional levels.

[Please insert Table 7 Here]

Table 8 reports the results of the multivariate regressions using the Size_dummy variable as a

firm size proxy (which equals to 1 for large firms (more than $54.4 million) and equals to 0

for small firms (less than $54.4 million). Most of the results are consistent with those

reported in Table 7, although the negative size effect is only significant for the one day

returns horizon. Interestingly, the CEO dominance variable is significantly negative for the

one day returns of US firms. For Canadian firms, CEO dominance has a significantly

negative effect across all horizons.

[Please insert Table 8 Here]

In Table 9, we report the results of the the multivariate regression, using the market

capitalization variable: use lnMV as firm size proxy variable. On the whole, the results ae

qualitatively similar to those obtained using the other firm size proxies, although the CEO

dominance variable for US firms is not significant. In Canada, CEO dominance continues to

have a detrimental effect on stock returns, as in Tables 7 and 8.

17
 [Please insert Table 9 Here]

5. Conclusion

The paper provides evidences in support of a size effect for IPO performance in both Canada

and the US. Two benchmark criteria are used to distinguish large firms vs. small firms: gross

proceeds (Bartlett, Rose, and Solomon, 2017) and market capitalization (Switzer, 2010). We

find support for a significant size effect: for short investment horizons: in both Canada and

the US, smaller firms have greater IPO underpricing, suggesting that this may be due to

greater uncertainty in the valuation of smaller firms. It is also consistent with Lowry, Officer

and Schwert (2010). We do not find a differential size effect on the performance of firms

beyond a six-month horizon from the IPOs for Canada or the US, consistent with a seasoning

effect that reduces the information asymmetries across firms. Some clear country differences

are observed in the analyses. Venture Capital backing and lockup periods have significant

effects for the US firms, but not Canadian firms. This result could be explained by the small

proportion of Canadian IPO’s with Venture Capital backing, relative to the US (1.46% vs.

18.94%), as well as industry differences between countries. Specifically, High Tech firms

account for about 37% of the US sample, as opposed to only 9.43% of the Canadian sample.

One could argue that venture capitalists are more important for High Tech firms, where the

possibilities of adverse selection and moral hazard are more likely. Amit, Brander, and Zott

(1989) argue that venture capitalists should be less effective in Canada, since Canadian IPOs

are typically younger and smaller in scale. They conjecture that while venture capitalists
18
have advantages in dealing with informational problems than other investors, they should be

less effective for younger and smaller firms, as in Canada. Our results are consistent with

their theoretical model.

Finally, we also show that CEO dominance appears to have a larger detrimental effect on

Canadian firms. Whether these are due to differential behavioral or institutional factors

between countries remains a topic for future research.

19
Figure 1. This figure shows the number of IPOs and IPO underpricing in the US and Canada for small firms and
large firms separately in 2007-2016.

Number of IPOs in the US

350 60.00%

300 50.00%
250
40.00%
200
30.00%
150
20.00%
100

50 10.00%

0 0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Large US Small US Total US % small

Number of IPOs in Canada

400 100.00%
350 98.00%
300
96.00%
250
94.00%
200
92.00%
150
90.00%
100
50 88.00%

0 86.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Canada Large Canada Small Canada Total Canada % small

20
 IPO underpricing in the US
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Large US Small

IPO underpricing in Canada

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Canada Large Canada Small

21
Table 1
Table 1 shows the distribution IPOs and underpricing over the sample period (2007-2016) Panel A shows the number of IPOs in
US and Canada categorized by firm size. Panel B looks at the distribution based on underpricing and firm size. Firm size is
measured by (the inflation adjusted) gross proceeds.
Panel A Number of IPOs
US Canada
Year
Large Small Total % small Large Small Total % small
2007 241 59 300 19.67% 22 353 375 94.13%
2008 56 20 76 26.32% 14 282 296 95.27%
2009 150 85 235 36.17% 8 230 238 96.64%
2010 157 121 278 43.53% 10 242 266 90.97%
2011 107 130 237 54.85% 13 213 214 94.25%
2012 139 110 249 44.18% 4 183 187 97.86%
2013 177 138 315 43.81% 8 157 165 95.15%
2014 180 133 313 42.49% 9 124 133 93.23%
2015 113 86 199 43.22% 13 138 151 91.39%
2016 87 105 192 54.69% 20 191 211 90.52%
Avg 40.89% 94.49%
Total 1407 987 2394 121 2113 2234
Panel B IPO Underpricing

US Canada
Year
Large Small Large Small
2007 9.92% 18.62% 9.51% 20.20%
2008 2.34% 7.72% 10.44% 9.65%
2009 6.45% 8.65% 14.35% 15.36%
2010 6.38% 9.84% 13.07% 23.20%
2011 8.41% 14.24% 10.32% 25.72%
2012 12.26% 19.73% 13.24% 23.10%
2013 15.63% 11.75% 10.56% 11.54%
2014 15.99% 17.02% 14.09% 25.25%
2015 15.31% 13.97% 20.18% 18.57%
2016 8.16% 17.11% 12.52% 20.56%
Avg 10.09% 13.87% 12.83% 19.32%

22
Table 2 Distribution of IPO abnormal returns
Table 2 provides summary statistics of IPO abnormal returns for US and Canadian large firms and small firms for the period
2007-2016. Abnormal returns are shown for holding periods of 1 day, 30 days, 180 days and 1 year after the IPOs issue date.
Firm size categories are based on the gross proceeds (in MM) of the issue.
US Large firm
Year Total of Mean Median Abnormal Abnormal Abnormal Abnormal
IPOs Size size Return 1 day return 30 days return 180 return 1 year
days
2007 241 243.10 70.31 9.92% 7.98% 10.42% 7.35%
2008 56 987.06 76.22 2.34% 0.02% -24.31% -23.70%
2009 150 289.39 70.01 6.45% 9.70% 25.03% 31.82%
2010 157 373.88 72.00 6.38% 7.72% 16.14% 14.62%
2011 107 344.55 80.76 8.41% 8.12% 2.54% 3.01%
2012 139 224.57 75.02 12.26% 15.65% 24.02% 19.45%
2013 177 317.04 72.00 15.63% 19.67% 28.45% 21.49%
2014 180 297.40 72.00 15.99% 19.64% 23.28% 25.68%
2015 113 217.27 70.02 15.31% 19.71% 16.64% 12.35%
2016 87 304.85 75.00 8.16% 13.94% 24.35% 25.06%
Total 1407 377.56 73.33 11.35% 13.08% 13.96% 12.67%
US Small firm
2007 59 25.61 72.28 18.62% 14.26% 7.47% 5.96%
2008 20 18.75 65.58 7.72% 7.19% -14.15% -12.40%
2009 85 16.34 65.80 8.65% 11.82% 22.92% 18.60%
2010 121 15.40 67.75 9.84% 19.94% 15.78% 11.84%
2011 130 12.20 66.00 14.24% 2.97% 10.73% 0.63%
2012 110 13.90 66.93 19.73% 21.77% 17.37% 29.36%
2013 138 18.74 68.83 11.75% 12.29% 19.67% 12.57%
2014 133 20.60 66.24 17.02% 18.71% 2.88% 5.53%
2015 86 18.96 65.00 13.97% 7.95% 11.58% 17.46%
2016 105 20.27 68.50 17.11% 19.14% 12.74% 14.79%
Total 987 17.62 67.29 14.64% 14.29% 13.36% 11.74%
Total US 2394 196.30 70.31 12.73% 13.04% 13.54% 11.98%
Canadian Large firm
2007 22 171.14 64.58 9.51% 15.87% 1.38% -7.87%
2008 14 63.32 57.96 10.44% -6.77% -31.07% -18.64%
2009 8 108.23 93.74 14.35% 14.38% 15.94% 14.60%
2010 10 202.29 136.99 13.07% 14.55% 21.35% 6.14%
2011 13 73.19 53.51 10.32% 11.60% 11.52% 17.59%
2012 4 82.80 84.15 13.24% 15.65% 5.21% 9.19%
2013 8 134.27 43.47 10.56% 6.73% 10.02% 4.99%
2014 9 98.26 95.40 14.09% 11.98% 12.02% 15.74%
2015 13 245.76 124.44 20.18% 18.40% 19.62% 20.53%
2016 20 211.83 138.69 12.52% 9.75% 18.18% -3.17%
Total 121 139.11 89.29 13.09% 12.54% 10.12% 7.73%
Canadian Small firm
2007 353 1.83 0.51 20.20% 25.10% 25.30% 19.99%
2008 282 1.17 0.50 9.65% 17.54% -3.85% -7.40%
2009 230 1.61 0.50 15.36% 20.12% 22.16% 19.61%
2010 274 1.79 0.52 23.20% 23.47% 20.19% 22.46%
2011 213 1.95 0.53 25.72% 18.72% 24.57% 26.19%
2012 183 2.05 0.49 23.10% 27.44% 19.92% 15.46%
2013 157 1.54 0.54 11.54% 23.23% 17.40% 26.05%
2014 120 1.30 0.50 25.25% 18.80% 21.06% 26.96%
2015 130 2.21 0.51 18.57% 11.88% 18.57% 21.87%
2016 191 1.94 0.52 20.56% 23.64% 25.71% 19.42%
Total 2133 1.74 0.51 18.96% 22.13% 18.38% 17.91%
Total CA 2234 70.42 44.90 15.94% 16.77% 15.20% 13.06%

23
 Table 3 Distribution of IPO issue characteristics classified by firm size groupings (large vs. small based
on gross proceeds)
This table shows the distribution of the IPO issue characteristics for US and Canadian firms over the period 2007-2016.
The data are collected from SDC Platinum, WRDS, and Thomson Reuters. IPO underpricing is the first-day return after IPOs.
Money on the table is the difference of market value between the offer date and the first day after offering. Gross spread refers to
the fees that underwriters receive for arranging and underwriting an offering of debt or equity securities.
Panel A. Means of Canadian firms
Year Number of IPOs IPO underpricing Money on the Table Offer Price Gross Spread Total Assets
Large Small Large Small Large Small Large Small Large Small
2007 375 9.51% 19.18% 205.11 7.27 7.62 0.53 0.28 0.09 2421.51 15.91
2008 296 10.44% 9.74% 63.34 2.11 5.11 0.37 0.34 0.03 352.38 11.20
2009 238 14.35% 15.27% 60.15 5.64 2.55 4.64 0.19 0.04 471.38 20.42
2010 272 13.07% 18.63% 183.50 1.22 6.91 7.74 0.24 0.07 1031.34 12.45
2011 221 10.32% 22.10% 241.84 0.65 9.21 4.98 0.36 0.35 492.12 14.58
2012 187 13.24% 17.37% 89.40 0.77 10.12 0.54 0.53 0.24 1705.77 47.53
2013 150 10.56% 10.08% 143.33 1.85 7.55 0.72 0.38 0.31 2898.95 30.37
2014 133 14.09% 18.81% 43.50 1.02 9.14 0.24 0.75 0.18 588.56 29.64
2015 151 20.18% 19.70% 134.15 3.50 15.71 0.86 1.04 0.27 4876.05 58.68
2016 211 12.52% 17.94% 208.74 3.62 12.98 0.69 0.68 0.14 1574.83 64.01
Total 2234 12.83% 19.32% 162.05 3.03 11.29 2.48 0.31 0.06 2498.63 38.87
Panel B. Means of US firms
Year Number of IPOs IPO underpricing Money on the Table Offer Price Gross Spread Total Assets
Large Small Large Small Large Small Large Small Large Small
2007 300 17.26% 17.43% 132.94 26.74 16.06 9.00 0.94 0.53 2067.89 165.35
2008 76 9.34% 2.57% 817.94 7.11 21.03 8.81 0.98 0.60 6875.21 446.44
2009 235 5.83% 2.88% 181.41 5.39 16.01 5.93 0.78 0.37 23676.3 462.31
2010 278 10.33% 15.44% 150.96 13.22 16.74 6.13 0.88 0.42 3962.41 444.45
2011 237 17.59% 12.36% 253.08 34.92 17.68 4.79 0.96 0.38 1991.85 307.03
2012 249 19.46% 17.89% 118.61 8.32 17.92 4.61 0.96 0.35 1279.18 313.61
2013 315 15.55% 17.53% 210.32 4.90 22.90 6.58 1.11 0.52 3980.44 167.98
2014 313 18.64% 15.30% 176.51 13.81 17.78 6.70 0.98 0.50 3544.70 156.30
2015 199 14.69% 15.36% 147.63 14.72 21.39 6.47 1.04 0.50 1921.49 258.74
2016 192 19.30% 13.24% 169.16 6.91 23.02 6.11 1.04 0.46 5702.91 264.85
Total 2394 11.35% 13.87% 203.63 9.84 18.57 6.18 0.96 0.48 6985.24 287.37

24
Table 4 Descriptive Statistics for Returns and Firm/Issue Size Characteristics across
different return horizons for Canadian and US IPO firms
This table provides descriptive statistics for cumulative abnormal returns and various firm/issue characteristic for Canadian and
the US IPOs over the period 2007-2016. The data provided are collected from SDC Platinum, WRDS, and Thomson Reuters.
IPO underpricing is the first-day return after IPOs. The variables are defined in the appendix as Offer price, Rsp1day, Rsp30days,
Rsp180days, Rsp1year, Gross Spread, MVP, Total Assets, Market Valueafter offer..Rsps are abnormal returns in different investment
horizons. Gross spread (in MM) refers to the fees that underwriters receive for arranging and underwriting an offering of debt or
equity securities. MVP (in MM) is the difference of market value between the offer date and the first day after offering. This
table represents the descriptive statistics of each variable for Canada, US, and small firms and large firms separately. Results of
number, means, maximum, minimum, range, and standard deviation are shown in the table. Data is derived from SDC Platinum,
WRDS.
Panel A Canadian firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 2247 3.23 199.00 0.01 198.99 47.40
Rsp1day 2247 15.94% 1125% -96.00% 12.21 94.37
Rsp30days 2247 16.77% 990% -91.67% 19.07 117.34
Rsp180days 2146 15.20% 757.14% -92.67% 8.50 125.58
Rsp1year 2050 13.06% 766.67% -90.91% 8.58 156.01
Gross Spread 2083 0.33 3.40 0.01 3.39 1.52
MVP 1463 113.28 1643.40 -2794.70 4438.10 29783.24
Total Assets 2132 391.92 38462.70 0.10 38462.80 8289.54
Market Valueafter offer 2186 624.74 74829.10 14.80 74814.30 30537.41
VC 33 1.46% N/A N/A N/A N/A
Multi-class 26 1.62% N/A N/A N/A N/A
High-tech 211 9.43% N/A N/A N/A N/A
Lockup 1058 120.94 365 30 335 19.52
CEO dominance 1045 8.14 200 0.01 199.99 10.13
Size of management team 564 6.35 19 2 17 2.60
Panel B US firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 2380 13.47 265.00 0.01 264.99 14.51
Rsp1day 2380 12.73% 750.00% -77.05% 8.27 64.74
Rsp30days 2380 13.47% 910.00% -80.19% 9.90 53.41
Rsp180days 2159 13.54% 1400.00% -87.92% 1.49 81.69
Rsp1year 2307 11.98% 1900.00% -96.73% 2.00 106.95
Gross Spread 2274 0.80 8.88 0.01 8.87 0.69
MVP 2235 162.40 10432.70 -4116.60 14539.30 3653.05
Total Assets 2305 6912.62 2251469 0.10 2251469 81379.47
Market Valueafter offer 2361 1299.20 159636.20 0.10 159636.30 6144.20
VC 450 18.94% N/A N/A N/A N/A
Multi-class 80 3.93% N/A N/A N/A N/A
High-tech 872 36.62% N/A N/A N/A N/A
Lockup 1761 148.13 730 17 713 58.48
CEO dominance 735 8.08 212 0.04 211.96 11.03
Size of management team 1909 6.74 20 3 17 2.86
Panel C Canadian Small firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 2135 2.35 41.88 0.01 41.87 42.28
Rsp1day 2135 18.96% 1125% -96.00% 12.21 120.45
Rsp30days 2135 22.13% 990% -91.67% 19.07 132.03

25
Rsp180days 2042 18.38% 757.14% -92.67% 8.50 101.40
Rsp1year 1964 17.91% 766.67% -90.91% 8.58 137.96
Gross Spread 1992 0.16 2.09 0.01 2.08 1.56
MVP 1356 3.03 4194.70 -429.80 4624.50 29479.51
Total Assets 2037 192.53 7976.39 0.10 7976.29 7182.61
Market Valueafter offer 2096 132.24 2115.20 0.10 2115.10 31487.09
VC 22 1.03% N/A N/A N/A N/A
Multi-class 25 1.65% N/A N/A N/A N/A
High-tech 200 9.01% N/A N/A N/A N/A
Lockup 998 118.95 365 30 335 15.13
CEO dominance 980 8.33 200 0.01 199.99 8.18
Size of management team 511 6.30 19 2 17 2.07
Panel D Canadian Large firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 112 20.16 199.00 0.15 198.85 42.71
Rsp1day 112 13.09% 142.85% -44.34% 1.87 148.53
Rsp30days 112 12.54% 100.00% -74.63% 1.75 205.71
Rsp180days 104 10.12% 186.50% -89.85% 2.77 62.68
Rsp1year 86 7.73% 332.85% -88.71% 4.22 283.87
Gross Spread 91 0.65 3.40 0.02 3.38 0.35
MVP 107 162.05 1239.60 -2794.70 4034.30 8104.20
Total Assets 95 2101.99 38462.70 14.80 38447.90 8087.52
Market Valueafter offer 90 2484.20 74829.10 28.80 74800.30 18276.25
VC 11 10.08% N/A N/A N/A N/A
Multi-class 2 0.84% N/A N/A N/A N/A
High-tech 11 10.21% N/A N/A N/A N/A
Lockup 60 121.01 180 50 130 15.40
CEO dominance 65 5.20 20.82 0.47 20.35 6.69
Size of management team 53 6.81 16 3 13 1.37
Panel E US Small firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 977 6.15 69.46 0.01 69.45 13.10
Rsp1day 977 14.64% 750.00% -77.05% 8.27 101.32
Rsp30days 932 14.29% 910.00% -80.19% 9.90 198.24
Rsp180days 909 13.36% 1400.00% -87.92% 1.49 132.47
Rsp1year 926 11.74% 1900.00% -90.26% 2.00 193.08
Gross Spread 906 0.46 2.70 0.01 2.69 0.96
MVP 934 9.84 6500.00 -2637.7 9137.70 3379.16
Total Assets 960 287.37 8274.10 0.10 8274.00 15374.22
Market Valueafter offer 965 177.06 41436.90 0.10 41436.80 6144.20
VC 191 36.95% N/A N/A N/A N/A
Multi-class 40 4.66% N/A N/A N/A N/A
High-tech 380 36.99% N/A N/A N/A N/A
Lockup 697 151.01 730 30 700 42.64
CEO dominance 345 7.22 212 0.13 211.87 6.77
Size of management team 764 7.62 20 3 17 1.36
Panel F US Large firms
Variable Number Mean Maximum Minimum Range Std Dev
Offer Price 1403 18.57 265.00 0.20 264.80 21.08

26
Rsp1day 1403 11.35% 206.67% -68.54% 2.76 86.41
Rsp30days 1403 13.08% 246.67% -72.40% 3.19 137.33
Rsp180days 1182 13.96% 334.36% -79.03% 4.13 156.46
Rsp1year 1381 12.67% 815.60% -96.73% 9.12 127.62
Gross Spread 1368 0.96 8.88 0.03 8.85 0.56
MVP 1301 203.63 10432.70 -4116.60 14549.30 4127.04
Total Assets 1345 11239.60 2251469 1.40 2251469 65385.47
Market Valueafter offer 1396 2109.47 159636.20 45.00 159591.20 6857.76
VC 259 19.17% N/A N/A N/A N/A
Multi-class 40 3.45% N/A N/A N/A N/A
High-tech 492 36.49% N/A N/A N/A N/A
Lockup 1064 146.24 390 17 373 35.05
CEO dominance 390 6.31 96 0.04 95.96 7.23
Size of management team 1145 8.96 18 3 15 2.01

27
Table 5
Table 5 provides summary statistics for IPO’s returns across alternative investment horizons according to issue feature and industry characteristics for the period 2007 – 2016. Further description of how country, size,
industry, VC-backed, Lockup, and multi-class shares are defined. The returns are performed by US and Canada, and by large firms and small firms separately. Firms descriptions of how high-tech, VC-backed, and
multi-class are defined by SDC platinum database. Firms are classified by lockup period on the basis of whether the lockup periods are higher or lower than the median period. T-statistics (P-value) are reported for
two-sided tests on whether estimates are different from zero. Statistical significance is indicated at the 10%, 5%, and 1% (***) levels.
Panel A US Comparisons
US Large firm US Small firm
Firm/Issue Characteristics Return1 day after Return30days after Return180 day after Return1 year after Returns1 day after Return30days after Return180 day after Return1 year after
Industry
High-Tech 13.86% 17.15% 18.32% 10.08% 15.13% 13.75% 10.88% 9.26%
Non-High-Tech 9.31% 8.38% 10.26% 11.47% 12.09% 14.69% 11.96% 10.72%
P-value (T-stats.) 0.035** 0.012** 0.08* 0.061* 0.4506 0.0574* 0.3683 0.6805
VC -Backed
VC-backed 16.28% 14.11% 15.30% 12.27% 14.74% 16.39% 12.60% 15.37%
Non-VC-backed 8.54% 11.45% 10.01% 10.38% 13.13% 12.54% 11.41% 7.88%
P-value (T-stats.) 0.0018** 0.1947* 0.0003** 0.0852* <0.0001*** 0.0003** 0.0025** 0.0016**
Lockup Period
Long 15.22% 14.50% 13.08% 15.19% 13.35% 16.02% 11.54% 12.54%
Short 9.36% 12.71% 15.33% 9.36% 15.18% 12.35% 13.69% 10.06%
P-value (T-stats.) 0.0054** 0.0814* 0.1721 0.2314 0.0055** 0.013* 0.341 0.084*
Multi-Class Shares
Multi-class 9.11% 13.24% 10.52% 11.37% 12.20% 16.80% 10.32% 12.33%
Non-multi-class 12.05% 12.90% 15.50% 14.61% 13.94% 10.05% 14.29% 11.28%
P-value (T-stats.) 0.0004** 0.0127** 0.1303 0.193 0.051* 0.004* 0.142 0.0244**
Panel B Canada comparisons
Canadian Large firm Canadian Small firm
Categories Return1 day after Return30days after Return180 day after Return1 year after Returns1 day after Return30days after Return180 day after Return1 year after
Industry
High-Tech 15.09% 16.71% 10.26% 11.70% 20.58% 22.86% 20.30% 24.45%
Non-High-Tech 10.86% 9.87% 11.25% 7.32% 18.60% 16.12% 15.09% 18.43%
P-value (T-stats.) 0.054* 0.0962* 0.238 0.7157 0.0077** 0.1024 0.0538* 0.753
VC -Backed
VC-backed 13.36% 14.90% 10.25% 8.90% 20.11% 18.25% 21.36% 17.44%
Non-VC-backed 12.17% 10.34% 6.67% 6.39% 17.64% 21.30% 18.93% 22.06%
P-value (T-stats.) 0.0824** 0.093* 0.0224** 0.0816** 0.116 0.045** 0.7687 0.0604*

28
Lockup Period
Long 16.15% 15.42% 10.33% 9.84% 23.08% 24.93% 17.17% 16.53%
Short 9.82% 6.23% 7.76% 5.22* 17.64% 18.20% 20.91% 22.58%
P-value (T-stats.) 0.1016 0.067* 0.3055 0.2359 0.0052** 0.0037** 0.0636* 0.255
Multi-Class Shares
Multi-class 12.59% 10.95% 9.73% 9.01% 14.63% 18.08% 21.55% 17.40%
Non-multi-class 10.32% 14.20% 12.38% 13.64% 22.85% 24.24% 19.13% 21.49%
P-value (T-stats.) 0.0745* 0.184 0.035** 0.1743 0.2337 0.116 0.0319** 0.692

29
Table 6 Correlation Matrix

This table shows the correlation matrix table for the explanatory variables of the model and are defined in the Appendix. Panel A and Panel B represent correlations of US
firms and Canadian firms, respectively. Statistical significance of correlations is indicated as P-value in the second row for each variable.
Panel A US firms
Lnproceeds Size_dummy LnMV Gross Spread MVP VC Multi-Class High-tech Lockup CEO dominance Size of management team

Lnproceeds 1.00000

Size_dummy 0.75630 1.00000

<0.001
LnMV 0.28647 0.16618 1.00000
<.0001 <.0001
Gross Spread -0.01677 -0.00468 0.43468 1.00000
0.4590 0.8362 <.0001
MVP 0.01295 0.00835 0.03559 0.06161 1.00000
0.5595 0.7068 0.1087 0.0117
VC -0.04014 -0.02819 0.11033 0.10819 0.01158 1.00000
0.0503 0.1692 <.0001 <.0001 0.6019
Multi-Class 0.03275 0.05623 0.13916 0.04513 -0.00059 -0.08098 1.00000
0.1371 0.0106 <.0001 0.0616 0.9795 0.0002
High-tech -0.02378 -0.00971 -0.04356 -0.08259 0.01119 0.47465 -0.04466 1.00000
0.2462 0.6359 0.0416 0.0003 0.6139 <.0001 0.0426
Lockup -0.08598 -0.05809 -0.08565 0.12791 0.04187 0.32694 -0.11243 0.11637 1.00000
0.0003 0.0148 0.0004 <.0001 0.0984 <.0001 <.0001 <.0001
CEO dominance -0.09077 -0.04479 -0.12529 -0.03307 0.00610 -0.04971 0.05425 -0.04720 0.03803 1.00000
0.0138 0.2249 0.0009 0.4319 0.8757 0.1779 0.1585 0.2009 0.3837
Size of management team 0.02607 0.02696 0.36550 0.13450 -0.00568 0.06521 0.05410 -0.01895 -0.00566 -0.01512 1.00000
0.2550 0.2392 <.0001 <.0001 0.8112 0.0044 0.0225 0.4081 0.8229 0.7136

Table 6, Cont’d

30
Panel B Canadian firms
Lnproceeds Size_dummy LnMV Gross Spread MVP VC Multi-Class High-tech Lockup CEO dominance Size of management team

Lnproceeds 1.00000

Size_dummy 0.78941 1.00000

<.0001
LnMV 0.39363 0.29601 1.00000
<.0001 <.0001
Gross Spread -0.01862 -0.00811 0.12288 1.00000
0.3802 0.7024 <.0001
MVP -0.01187 -0.01365 0.13997 -0.00087 1.00000
0.6281 0.5775 <.0001 0.9718
VC 0.03386 -0.00019 0.05991 0.02059 -0.00123 1.00000
0.1086 0.9929 0.0097 0.3317 0.9599
Multi-Class 0.06227 0.04885 0.20453 0.00174 -0.00296 -0.00690 1.00000
0.0110 0.0461 <.0001 0.9436 0.9084 0.7783
High-tech 0.02888 0.00556 0.09948 0.00040 -0.00767 0.08194 -0.00694 1.00000
0.1712 0.7922 <.0001 0.9849 0.7542 0.0001 0.7771
Lockup 0.03979 -0.00234 0.09960 0.00366 0.03412 0.18647 0.24977 -0.00256 1.00000
0.1961 0.9393 0.0034 0.9054 0.3309 <.0001 <.0001 0.9337
CEO dominance -0.17290 -0.08603 -0.09836 -0.02400 0.02731 -0.02138 0.00283 -0.02881 -0.06570 1.00000
<.0001 0.0054 0.0035 0.4409 0.4446 0.4900 0.9368 0.3522 0.1404
Size of management team 0.07170 0.06955 0.50166 0.08649 0.14187 0.03745 0.14777 0.00992 0.11782 -0.13365 1.00000
0.0892 0.0992 <.0001 0.0413 0.0009 0.3752 0.0006 0.8143 0.0332 0.0452

Table7

31
Table 7 This table shows the results of OLS regressions showing the relationship between IPO performance and firm size of US and Canada firms. The regression equation is 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑡𝑡 = 𝑎𝑎0 + 𝑎𝑎1 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑑𝑑𝑑𝑑 +
𝑎𝑎2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝑎𝑎3 𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎4 𝑉𝑉𝑉𝑉 + 𝑎𝑎5 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎6 𝐻𝐻𝐻𝐻𝐻𝐻ℎ𝑇𝑇𝑇𝑇𝑇𝑇ℎ + 𝑎𝑎7 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝑎𝑎8 lnAssets + 𝑎𝑎9 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑎𝑎10 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡. Return is abnormal return at subperiods after IPOs,
measured from the first aftermarket closing price to the earlier date. Lnproceeds measure the firm size by natural logarithm of gross proceeds, which is the natural logarithm of gross proceeds. Gross proceeds are
measured in millions of dollars. Gross Spread represents underwriter fees, and MVP refers to Money on the Table. VC refers whether firms are backed by venture capital or not. MultiClass represents a term of voting
in board by using dummy variable. HighTech is a dummy variable verifying a firm belonging to high-tech or not. Lockups is a contractual restriction that prevents insiders who are holding a company's stock. CEO
Dominance is the dominance of the CEO over the other team members. It is calculated as the ratio of salary of the CEO to that of the other members of the management team. Size of management teams is defined as
the number of managers with the rank of vice-president or higher in the management team. P-values are in parentheses. Significance is indicated at the 10%(*), 5%(**), and 1%(***) levels.
Variables Intercept lnproceeds Gross MVP VC Multi-Class High-Tech Lockup CEO Size of F-value
Spread Dominance management
Returny team
US firms
Returnone day 13.08** -2.86*** 3.47* -0.002** 6.51** 1.56 2.72 0.08** -0.09 -0.13 15.99
after
(2.70) (-6.83) (1.77) (3.27) (2.30) (0.24) (1.20) (3.27) (-0.81) (-0.35)

Return 1 month 27.59*** -2.63*** 3.23 -0.002 8.39** -5.28 0.21 0.07* -0.15 -1.01* 7.36
after
(4.13) (-4.59) (1.20) (-0.96) (2.21) (-0.59) (0.07) (1.86) (-0.98) (-2.03)

Return180 days 54.23*** -1.55 0.56 -0.003 18.53** -16.40 -3.51 -0.05 -0.38 -2.30** 2.56
after
(5.67) (-1.49) (0.11) (-0.85) (2.84) (-1.01) (-0.62) (-0.94) (-1.35) (-2.55)

Return1 year 67.04*** 0.02 -3.98 -0.001 22.34** -23.67 -3.14 -0.12 -0.65 -2.01 1.41
after
(3.87) (0.01) (-0.54) (-0.17) (2.27) (-0.97) (-0.37) (-1.62) (-1.59) (-1.50)

Cdn Firms

Returnone day 33.39** -0.29 29.35 0.001 13.73 10.61 -17.64 0.03 -2.82*** -1.11 3.81
after
(2.44) (-0.29) (1.19) (0.37) (0.51) (0.34) (-1.65) (0.40) (-5.22) (-0.79)

Return 1 month 51.24** -1.72 8.84 -0.006 27.80 17.08 -14.74 -0.002 -3.61*** -1.82 2.96
after
(2.62) (-1.20) (0.26) (-1.34) (0.76) (0.40) (-0.94) (-0.01) (-4.80) (-0.96)

Return180 days 40.67 -0.11 -24.53 -0.007 27.88 23.95 -12.17 -0.04 -3.44** -2.04 0.87
after
(1.14) (-0.04) (-0.38) (-0.90) (0.40) (0.30) (-0.44) (-0.20) (-2.46) (-0.55)

Return1 year 40.93 -0.45 -53.88 -0.007 8.70 42.31 2.22 0.21 -3.55* -7.34 0.67
after
(0.82) (-0.13) (-0.63) (-0.64) (0.09) (0.38) (0.06) (0.71) (-1.85) (-1.36)

32
Table 8
This table shows results of the OLS regressions for the relationship between IPO performance and firm size of US and Canada firms. The regression equation is 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑡𝑡 = 𝑎𝑎0 + 𝑎𝑎1 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 +
𝑎𝑎2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝑎𝑎3 𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎4 𝑉𝑉𝑉𝑉 + 𝑎𝑎5 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎6 𝐻𝐻𝐻𝐻𝐻𝐻ℎ𝑇𝑇𝑇𝑇𝑇𝑇ℎ + 𝑎𝑎7 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝑎𝑎8 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑎𝑎9 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑡𝑡𝑡𝑡𝑎𝑎𝑚𝑚𝑚𝑚. Return is abnormal returns at subperiods after IPOs, measured by
the first aftermarket closing price to the earlier date. Size_dummy is dummy variable defined by gross proceeds, which equals to 1 for large firms and equals to 0 for small firms. Gross Spread measures firm costs when
going public in terms of underwriter fees. MVP measures Money on the Table. VC refers whether firms are backed by venture capital or not. MultiClass represents a term of voting in board by using dummy variable.
HighTech is a dummy variable verifying a firm belonging to high-tech or not. Lockups is a contractual restriction that prevents insiders who are holding a company's stock. CEO Dominance is the dominance of the
CEO over the other team members. It is calculated as the ratio of salary of the CEO to that of the other members of the management team. Size of management teams is defined as the number of managers with the rank
of vice-president or higher in the management team. P-values are in parentheses. Significance is indicated at the 10%(*), 5%(**), and 1%(***) levels.
Variables Intercept Size_dummy Gross MVP VC Multi-Class High-Tech Lockup CEO Size of F-value
Spread Dominance management
Returnt team
US firms
Returnone day 3.50 -3.65* 3.65 -0.001 8.02** -0.04 2.81 0.10** -0.06* -0.27 9.90
after
(0.63) (-1.86) (1.64) (-0.60) (2.66) (-0.01) (1.15) (3.71) (-2.18) (-0.69)

Return 1 month 18.15** -3.26 2.85 -0.001 8.02** -5.20 0.13 0.07** -0.18 -0.96 5.30
after
(2.85) (-1.01) (1.12) (-0.80) (2.38) (-0.67) (0.05) (2.32) (-1.33) (-2.15)

Return180 days 57.90*** -10.81 -2.29 -0.004 16.96** -17.47 -2.10 -0.05 -0.37 -2.62** 2.60
after
(4.63) (-1.62) (-0.43) (-0.94) (2.53) (-1.08) (-0.36) (-0.94) (-1.31) (-2.81)

Return1 year 71.72*** -11.10 -3.74 -0.0006 17.27** -21.40 -3.22 -0.12* -0.63* -2.54** 1.81
after
(4.50) (-1.31) (-0.56) (-0.11) (2.03) (-1.04) (-0.44) (-1.83) (-1.82) (-2.17)

Cdn Firms

Returnone day 34.00 -1.59 27.73 0.001 12.30 7.61 -16.41 0.03 -2.75*** -0.96 3.83
after
(1.65) (-0.12) (1.08) (0.40) (0.46) (0.23) (-1.56) (0.31) (-5.30) (-0.70)

Return 1 month 51.63* -5.42 4.40 -0.005 25.48 8.22 -13.43 -0.02 -3.34*** -1.53 2.77
after
(1.75) (-0.28) (0.12) (-1.26) (0.68) (0.18) (-0.86) (-0.19) (-4.57) (-0.81)

Return180 days 38.97 1.27 -23.82 -0.008 27.98 25.22 -11.50 -0.04 -3.36** -2.11 0.88
after
(0.73) (0.04) (-0.36) (-0.92) (0.41) (0.29) (-0.42) (-0.19) (-2.54) (-0.59)

Return1 year -7.96 37.29 -30.03 -0.007 21.12 79.00 4.24 0.28 -3.44** -7.20 0.84
after
(-0.12) (0.85) (-0.36) (-0.69) (0.25) (0.73) (0.13) (1.00) (-2.04) (-1.49)

33
Table 9
This Table shows results of the OLS regression for the relationship between IPO performance and firm size of US and Canada firms. The regression equation is 𝑅𝑅𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑡𝑡 = 𝑎𝑎0 + 𝑎𝑎1 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝑎𝑎2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 +
𝑎𝑎3 𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎4 𝑉𝑉𝑉𝑉 + 𝑎𝑎5 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑎𝑎6 𝐻𝐻𝐻𝐻𝐻𝐻ℎ𝑇𝑇𝑇𝑇𝑇𝑇ℎ + 𝑎𝑎7 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝑎𝑎8 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑎𝑎9 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡. Return is abnormal returns at subperiods after IPOs, measured by the first aftermarket
closing price to the earlier date. LnMV is natural logarithm of market values when firms going IPOs, which measures firm size based on market capitalization. Market value is measured in millions of dollars. Gross
Spread measures firm costs when going public in terms of underwriter fees. MVP measures Money on the Table. VC refers whether firms are backed by venture capital or not. MultiClass represents a term of voting in
board by using dummy variable. HighTech is a dummy variable verifying a firm belonging to high-tech or not. Lockups is a contractual restriction that prevents insiders who are holding a company's stock. CEO
Dominance is the dominance of the CEO over the other team members. It is calculated as the ratio of salary of the CEO to that of the other members of the management team. Size of management teams is defined as
the number of managers with the rank of vice-president or higher in the management team. P-values are in parentheses. Significance is indicated at the 10%(*), 5%(**), and 1%(***) levels.
Variables Intercept LnMV Gross MVP VC Multi-Class High-Tech Lockup CEO Size of F-value
Spread Dominance management
Returnt team
US firms
Returnone day 2.43 -1.43* 3.13* -0.0009 8.71** 0.52 2.47 0.09*** -0.26 -0.50 10.86
after
(0.78) (-1.85) (1.88) (-0.74) (3.52) (0.54) (1.14) (4.08) (-1.60) (-0.85)

Return 1 month 14.47** 0.41 2.54 -0.002 7.50** -5.40 -1.33 0.08* -0.30 -0.79* 6.69
after
(2.96) (0.67) (1.03) (-1.13) (2.80) (-0.69) (-0.23) (2.01) (-1.42) (-2.23)

Return180 days 23.84* -2.24 -2.01 -0.004 10.07** -15.34 -3.07 0.35 -0.52 -1.73** 3.47
after
(2.30) (-1.03) (-0.25) (-1.01) (3.05) (-1.06) (-0.67) (0.73) (-1.12) (-3.35)

Return1 year 32.05** 4.37 -5.21 -0.015 18.83* -20.91 -5.60 -0.12* -0.87* -2.40* 3.08
after
(3.21) (1.26) (-0.58) (-0.58) (2.10) (-1.44) (-0.40) (-1.85) (-1.79) (-1.83)

Cdn Firms

Returnone day 25.39* -1.43 26.64 0.03 8.97 9.14 -9.64 0.03 -2.53*** -0.32 3.94
after
(1.90) (-0.74) (1.20) (0.42) (0.37) (0.32) (-0.99) (0.42) (-5.35) (-0.25)

Return 1 month 44.99** 0.62 2.60 -0.005 23.59 8.58 -6.74 -0.05 -2.13* -1.58 2.85
after
(2.33) (0.22) (0.08) (-1.30) (0.69) (0.57) (-0.89) (-0.61) (-1.80) (-0.98)

Return180 days 29.05 -1.37 -24.95 -0.008 25.57 24.96 -5.12 -0.15 -2.68 -1.55 1.52
after
(0.95) (-0.32) (-0.49) (-1.22) (0.47) (0.39) (-0.40) (-0.74) (-0.93) (-0.36)

Return1 year 5.42 -9.03 -46.26 -0.009 4.02 58.21 12.50 0.25 -3.25* -4.71 0.98
after
(0.11) (-1.36) (-0.60) (-0.89) (0.05) (0.59) (0.37) (0.93) (-1.95) (-0.92)

34
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 Appendix
Variables Description
This table describes variables used in the paper, including dependent variables and independent variables.
Variable Description

Offer Price The per share value at which publicly issued securities are made
available for purchase by the investment bank underwriting the
issue
Rsp1d Abnormal returns 1 day after IPOs, which represent IPO
underpricing.
Rsp30day Abnormal returns 30 days after IPOs
Rsp180d Abnormal returns 180 days after IPOs
Rsp1y Abnormal returns 1 year after IPOs
The difference (in MM) between the underwriting price received
by the issuing company and the actual price offered to the
Gross spread
investing public

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Offer
Total Assets Total assets (in MM) of companies at the end of the first IPO day

MVafter offer Market values (in MM) of companies at the end of the first IPO
day
The difference (in MM) between market value after and between
MVP
IPOs. That difference is described as “Money left on table”

Size_dummy Dummy variable of firm size classified by gross proceeds. If Size

equals to 1, firms are classified as large firms (gross
proceeds >54.4M); if Size equals to 0, firms are classified as
small firms (gross proceeds <54.4M)

LnMV Natural logarithm of market value (in MM) when firms going
IPOs.

Dummy variable of whether a company is high tech or not. If

High-tech
High-tech equals to 1, firms are high-tech firms. Otherwise, firms
are non-high-tech firms.

Natural logarithm of IPO gross proceeds (in MM) of firms when

Lnproceeds
going IPOs

Dummy variable of whether a company is backed by venture

VC
capitals. VC equals to 1, VC-backed firms; otherwise, 0

The number of days following the IPO where large shareholders

Lockup
are restricted from selling their shares.

CEO Ratio of salary of the CEO to that of the other members of the
Dominance management team.

Size of
The number of managers with the rank of vice-president or higher
management
in the management team.
team

39