1. New Lists and Seasoned Firms: Fundamentals and Survival Rates Eugene F. Fama Kenneth R. French October 16, 2002

2. Overview There is a flood of new lists in 1980s and 1990s. Profitability is progressively more disperse and left skewed. Growth becomes more disperse and right skewed. There is sharp decline in new list survival rates. Seasoned firms acquire subdued versions of these characteristics.

3. Previous Research Lots of evidence on returns of IPOs and other new lists –Ritter (1991)Dharan and Ikenberry (1995) –Loughran and Ritter (1995)Eckbo and Norli (2001) –Brav, Geczy, and Gompers (2000)Gompers and Lerner (2001) –Shultz (2002) Some evidence on new list survival rates –Seguin and Smoller (1997) Less evidence on characteristics and performance –Jain and Kini (1994) –Mikkelson, Partch, and Shah (1997)

6. Table 1 – Average Number of Firms and Average NYSE and Local Exchange Percentiles for Market Equity and Assets All New Lists (ME)All New Lists (Assets) FirmsNYSE %Local %FirmsNYSE %Local % 1973-19791499.345.21045.733.4 1980-19895738.248.34155.237.9 1990-200062217.555.556510.244.0 IPOs (ME)Non-IPO New Lists (ME) FirmsNYSE %Local %FirmsNYSE %Local % 1973-19793013.257.81198.742.2 1980-198930610.655.32675.941.3 1990-200043220.460.318910.945.2

7. Table 1 – Percent of Names in NYSE Percentile Range All New Lists (ME)All New Lists (Assets)  0  5  10  20  0  5  10  20 1973-197912.167.075.285.363.684.785.790.3 1980-19898.566.078.188.521.684.785.989.6 1990-20000.033.250.070.19.965.068.277.0 IPO’s (ME)Non-IPO New Lists (ME)  0  5  10  20  0  5  10  20 1973-19795.948.559.478.013.771.078.686.2 1980-19893.455.669.383.613.276.586.593.3 1990-20000.124.540.163.40.051.971.185.3

16. Figures 4b and 4c – Profitability of All New Lists and Big New Lists of Last Five Years

17. Figures 4b and 5a – Profitability of Firms Listed within Last 5 Years and Firms Seasoned for More than 5 Years

18. Figures 5a and 5b – Profitability of All Seasoned Firms and Big Seasoned Firms

19. Figures 5a and 5c – Profitability of Firms Seasoned More Than Five Years and More Than Ten Years

20. Figures 4b and 6a – Profitability of Firms Listed within Last Five Years and All Firms

21. Figures 7a and 7b – Growth of All Firms and Firms Seasoned More Than Five Years

22. Figures 7a and 7c – Growth of All Firms and Firms Listed within Last Five Years

23. Figures 7c and 8c – Growth of All New Lists and Big New Lists of the Last Five Years

24. Figures 8a and 8b – Growth of IPOs and Non-IPO New Lists of the Last Five Years

25. Figures 9a and 9b – Growth of IPOs and Non-IPO New Lists in Year After Listing

30. Table 4a – Average Profitability for Seasoned Firms and New Lists that Survive, Merge, or Delist Seasoned FirmsIPOsNon-IPO New Lists #531#531#531 Firms that Survive at Least another N x 12 Months 73-7922928.1 912.011.911.8767.37.47.5 80-8919258.58.4 4219.49.28.92106.7 6.6 90-0020986.16.36.27486.05.44.61814.74.84.4 Firms that Merge within N x 12 Months 73-794527.98.1 113.813.30.0109.410.56.6 80-894907.7 7.5888.78.25.4367.36.24.2 90-004895.0 4.42196.25.32.3362.82.60.5 Firms that Delist for Cause within N x 12 Months 73-791144.83.50.73-45.4-29.8-145.977.42.2-34.1 80-892152.92.0-3.91011.5-0.2-25.282-0.9-3.1-6.6 90-00307-1.6-4.2-10.4158-1.2-6.2-34.189-6.2-12.4-23.4

31. Table 4b – Average Growth for Seasoned Firms and New Lists that Survive, Merge, or Delist Seasoned FirmsIPOsNon-IPO New Lists 531531531 Firms that Survive at Least another N x 12 Months 73-7911.8 11.724.424.1 23.023.524.5 80-8910.2 10.139.238.938.516.817.517.4 90-005.97.08.123.126.929.37.38.813.1 Firms that Merge within N x 12 Months 73-7910.610.38.438.438.20.032.631.821.6 80-898.07.24.935.233.346.418.211.86.6 90-006.34.64.925.220.417.77.06.228.5 Firms that Delist for Cause within N x 12 Months 73-797.03.2-1.7-27.948.8-67.730.669.4-9.0 80-898.211.0-6.456.870.827.025.224.3-3.0 90-002.03.7-7.420.222.3-14.311.317.912.5

32. Summary There is a flood of new lists in 1980s and 1990s. New list profitability becomes progressively more disperse and left skewed. Growth becomes more disperse and right skewed. There is a sharp decline in new list survival rates. Seasoned firms acquire subdued versions of these characteristics.

33. What Caused the Changes? Improved governance? Reductions in holding costs or trading costs? But there is not a shift toward smaller firms. Shift of R&D from old firms to start-ups? Lower expected stock returns?