Impact of hedge funds on short-run IPO success
Purpose This paper aims to determine if hedge fund performance is related to short-run initial public offering (IPO) success and if it is a better predictor of short-run IPO success than market performance. Design/methodology/approach This paper utilizes the event study metric that computes monthly returns for hedge funds and Center for Research in Security Prices (CRSP) market indices. These returns are used in a regression model with dependent variables consisting of measures of short-run IPO success (SUC). We use the Vuong’s likelihood ratio test to compare the impact of hedge funds and market indices on initial public offering success. Findings This paper offers two new major findings. First, hedge fund performance prior to and during the IPO month (month 0) manifest a significant negative association with all measures of short-run IPO success. Second, whereas market returns also exhibit a negative association with IPO success, we show that hedge fund returns have a greater negative impact than market returns. Research limitations/implications This paper does not have information on which individual hedge funds have a greater negative impact on short-run IPO success but only the hedge fund industry as a whole. Practical implications Stronger hedge fund performance around IPOs can be detrimental to their success. Social implications Hedge funds are a stronger force than market forces in influencing IPO success. Originality/value This paper is the first study to document the potential influence of hedge fund performance on the success of a security offering and to compare this performance with market performance.
Authors
- Sungkyu Kwak (ORCID: https://orcid.org/0000-0003-0771-9096)
- Rosemary L. Walker (ORCID: https://orcid.org/0000-0003-0577-7401)
- Robert M. Hull (ORCID: https://orcid.org/0000-0002-0045-9773)
Institutions
- Washburn University (US)
Publication Details
- Journal
- International Journal of Managerial Finance
- Published
- 2025-09-22
- DOI
- https://doi.org/10.1108/ijmf-06-2024-0350
- Primary Topic
- Corporate Finance and Governance
- Type
- article
- Field-Weighted Citation Impact
- 0.00