IPO Characteristics and Analyst Forecasts

In this paper we examine the relationship between IPO analyst forecasts and two key IPO characteristics: retention and underpricing. We find that analysts predict higher long-term growth rates for IPOs with higher retention and/or higher underpricing. Analysts revise their growth forecasts downward further for IPOs with higher underpricing. However, the annual earnings forecasts are less over-optimistic for these IPOs. Retention is positively related to actual growth in sales. Underpricing is positively related to actual growth rate in sales and EBITDA but not significantly related to actual growth in earnings.