First Draft: March 2001 Revised: July 2002

Not for quotation Comments solicited

New Lists and Seasoned Firms: Fundamentals and Survival Rates

Eugene F. Fama and Kenneth R. French*

Abstract

The class of firms eligible for public equity financing expands dramatically in the 1980s and

1990s. After 1979, the rate at which new firms are listed on major U.S. stock exchanges jumps from

about 140 to near 600 per year. The characteristics of new lists also change. Cross-sections of

profitability and growth become progressively more disperse, profitability becomes more left skewed, and

growth becomes more right skewed. The result is a sharp decline in new list survival rates. The flood of

new lists eventually causes similar but more subdued changes in the characteristics of seasoned firms,

with a corresponding decline in survival rates.

* Graduate School of Business, University of Chicago (Fama), and Tuck School of Business, Dartmouth College (French). We gratefully acknowledge the helpful comments of Frank Easterbrook, Owen Lamont, Kenneth Lehn, Jonathan Macey, Richard Roll, Hans Stoll, and seminar participants at UCLA. We thank Jay Ritter for giving us his list of initial public offerings.

The market for publicly traded equity is the heart of a modern capitalist system, signaling the

terms on which investors are willing to bear residual corporate risks. The market for newly listed firms is

in turn a bellwether for the public equity market. It is the point of entry that gives firms expanded access

to equity capital, allowing them to emerge and grow. Examining the characteristics of newly listed firms

can provide interesting information about changes through time in the kinds of firms that are viable

candidates for public equity financing.

The issue is important. In a perfect capital market (that is, absent monitoring costs and other

frictions), investment is efficient: all wealth-creating projects are publicly financed, and their risks are

efficiently shared among investors. But when frictions cause some profitable projects to be financed

privately, or not undertaken at all, investment and risk sharing are inefficient relative to the zero-frictions

optimum. If security prices are rational, evidence that the class of firms that are publicly financed

broadens through time is evidence that demand conditions (the tastes of investors for different types of

risk) or supply conditions (monitoring costs or other frictions) have changed. To the extent that the

changes are due to supply conditions, the efficiency of investment and risk sharing improve.

Fama and French (2001) document that the rate of new listings, largely on NASDAQ, explodes

after 1979, from about 140 to near 600 per year. After 1979, on average about ten percent of listed firms

are new each year. Our earlier paper examines the characteristics (profitability and growth) of new lists

only in the listing year and not in much detail. Here we develop a detailed picture of the profitability and

growth of the NYSE-AMEX-NASDAQ new lists of 1973-2000 for the first five years after listing. And

we examine how changes in the characteristics of new lists during the sample period affect whether they

survive, disappear in mergers, or are delisted for poor performance.

Our results about the evolving characteristics of firms that are viable candidates for public equity

financing are easily summarized. The key words are dispersion and skewness. During 1980-2000, when

new lists are abundant, the cross-section of new list profitability drifts down, and the drift is stronger in

the left tail, that is, toward lower profitability. In contrast, the percentiles of new list growth drift up, and

the drift is stronger in the right tail, toward more rapid growth. New lists eventually become seasoned

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firms, and the profitability and growth of seasoned firms show subdued versions of the patterns observed

for new lists; profitability and growth become progressively more disperse, profitability becomes more

left skewed and growth becomes more right skewed. And we emphasize that although the process

accelerates after 1994 (when high-tech and internet-related new lists are abundant), the increasing

incidence of low-profitability high-growth firms is a long-term phenomenon, evolving slowly over the

last 20 years.

The drift in profitability and growth has a big effect on survival rates. The probability that a

seasoned firm continues to trade beyond the next ten years falls from 59.5% for the cohort of 1973 to

44.3% for the 1991 cohort. The probability that a new list survives its first ten years falls further, from

64.4% for the 1973 cohort to 37.0% for the 1991 cohort. Rates of disappearance in mergers do not trend

much during the sample period; on average, about one-third of the seasoned firms and one-fourth of the

new lists of a given year are absorbed within ten years in mergers. The decline in survival rates is thus

due to delistings for poor performance. The ten-year delist rate rises from 13.5% for the seasoned firms

of 1973 to 21.7% for the 1991 cohort. The ten-year delist rate for new lists rises much further, from

14.4% for the 1973 cohort to 40.2% for the cohorts of 1981-1991. Thus, about two in five of the new lists

of 1981-1991 are delisted within ten years for poor performance.

For both new lists and seasoned firms, most of the changes in the cross-sections of profitability

and growth during 1980-2000 trace to small new lists. Since large firms account for the lion’s share of

most economic aggregates, one might argue that changes in the characteristics of small new lists are

unimportant. The changes are, however, important for understanding the market for listed firms, that is,

the kinds of firms that are viable candidates for public equity financing and thus unrestricted risk sharing.

In essence, our results say that that changes in demand or supply conditions lead to increased sharing of

the risks of firms with low profitability and high growth, a combination that produces a large dose of

unhappy outcomes. Again, to the extent that this broadening of the kinds of firms publicly traded is due

to supply conditions (reductions in the costs of trading and holding such firms), the efficiency of the

economy’s investment and risk sharing are enhanced – as long as risks are properly priced.

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Finally, our results are related to those of Campbell, Lettau, Malkiel, and Xu (2001). They find

that the idiosyncratic dispersion of individual stock returns increases through time and the increase is

largely due to small firms. Our results suggest that the source of the higher return dispersion is increased

dispersion of profitability and growth, which largely traces to the post-1979 flood of small new lists.

We begin (section I) by detailing the rate of new listings during 1973-2000. Section II examines

the average profitability and growth of new lists and seasoned firms. The central evidence on the

evolution of the cross-sections of profitability and growth is in section III. Section IV examines survival

rates, and section V studies the links between survival rates and the profitability and growth of new lists

and seasoned firms. Section VI concludes and offers some perspective on whether the expansion of the

class of publicly traded firms during 1980-2000 is due to changes in demand or supply conditions.

I. New Lists: Counts and Size

Figure 1 shows annual counts of combined NYSE, AMEX, and NASDAQ new lists for 1973-

2000. To be in the sample, a firm must be on the files of the Center for Research in Security Prices

(CRSP) and have a share code of 10 or 11 (ordinary common shares), so ADRs and closed end mutual

funds are excluded. We define a new list as the first appearance of a firm on CRSP. Thus, our new lists

do not include firms that switch from one of the three exchanges to another. We also exclude tracking

stocks, spin-offs, and firms that go public after going private.

The tests start in 1973, the beginning of the CRSP NASDAQ period. Prior to 1973, newly public

firms typically trade over the counter (OTC, not covered by CRSP), and new listings on the NYSE and

AMEX (covered by CRSP) are mostly seasoned firms. NASDAQ absorbs most of the OTC market, and

for the post-1972 period, the CRSP files provide a rather complete picture of publicly traded firms.

We examine two types of new lists: initial public offerings (IPOs) and non-IPOs. A firm is

defined as an IPO if it is in the IPO sample provided by Jay Ritter (an updated version of that in Loughran

and Ritter (1995)) and its CRSP listing month is no more than ten months after its IPO. Non-IPO new

lists include (i) a small set of firms that are in the Ritter IPO sample but are listed on one of the three

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exchanges more than ten months after their IPO, and (ii) a larger set of new lists not in the Ritter IPO

sample. The latter are primarily (i) tiny firms that trade OTC (pink sheets) and do not make it to one of

the three exchanges soon after their IPO, and (ii) some financial firms that are missing from the Ritter

IPO sample but would qualify as IPOs under the ten-month rule. Since our main focus is the economic

fundamentals of non-financial firms, we do not attempt to more accurately allocate financial new lists

between IPOs and non-IPOs.

One can argue that, to study the kinds of firms that are viable candidates for public equity

financing, the ideal sample is all IPOs. Our IPOs include only those listed quickly on one of the three

exchanges (primarily NASDAQ). We miss IPOs that initially trade OTC. Many of these eventually

appear in the sample of non-IPO new lists, and this is why we use IPOs and non-IPO new lists to make

inferences about the characteristics of new publicly traded firms. There is, however, a survivor bias in

this approach; (financials aside) non-IPO new lists include only those initially unlisted IPOs that are

relatively successful and so eventually make it to one of the three exchanges. It is thus likely that our

inferences about the kinds of firms that qualify for public equity financing are conservative.

There is a more aggressive justification for our approach. One can argue that during 1973-2000,

IPOs not traded on the NYSE, AMEX, or NASDAQ are typically illiquid and so do not get the benefits of

unrestricted risk-sharing. In this view, during 1973-2000, an exchange listing is the better signal that a

firm qualifies for unrestricted risk sharing. Thus, examining new lists (IPOs and non-IPO) is a sound

approach. Moreover, changes in the characteristics of new lists related to changes in listing requirements

are not a problem if the exchanges compete for listings. Competition implies that listing requirements are

themselves the result of demand conditions (the tastes of investors for different types of risks) and supply

conditions (monitoring costs, information costs, and other frictions) that determine the types of firms that

qualify for unrestricted risk sharing.

Two facts are apparent in Figure 1. First, after moderate increases from 1973 to 1979, new lists

surge – from 220 in 1979 to 438 in 1980 and 620 in 1981. After 1979, only four years have less than 400

new lists. For 1980-2000, new lists average 598 per year (Table 1). There are not many IPOs in the

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1973-1979 period (on average 30 per year); most new lists are non-IPOs (119 per year). But during 1980-

2000, IPOs are more numerous than non-IPO new lists, averaging 372 per year, versus 226 for non-IPO

new lists. We can also report that more than 90% of the new lists of 1973-2000 are on NASDAQ.

Table 1 summarizes the size of annual new lists. We measure size as market capitalization, ME,

stock price times shares outstanding. The table shows the averages of the yearly average NYSE ME

percentile of new lists and the average local (listing) exchange ME percentile. When compared to firms

on their respective exchanges (NYSE, AMEX, or NASDAQ), new lists are on average medium sized.

For 1973-2000 the average local exchange ME percentile of all new lists, 50.3, is just a bit above the local

exchange median. There is only one year, 1976, when the average local exchange ME percentile of all

new lists is below 40. IPOs are on average larger than non-IPO new lists. For 1973-2000 the average

local exchange ME percentile of IPOs is 57.9, versus 43.1 for non-IPO new lists. But in absolute terms

new lists are typically tiny. The average NYSE ME percentile of the new lists of 1973-2000 is 12.1

(Table 1). IPOs are on average at the 15.1 NYSE ME percentile, versus 8.5 for non-IPO new lists.

The surge in new lists after 1979 is not associated with a decline in size. The average NYSE and

local exchange ME percentiles of new lists (IPOs and non-IPOs) increase from 1980-1989 to 1990-2000

(Table 1). More important, during 1973-2000 there is a progressive thinning of the extreme left tails of

the size distributions of new lists (IPOs and non-IPO). For example, the proportion of new lists below the

20th NYSE ME percentile falls from 85.3% for 1973-1979 to 70.1% for 1990-2000 (Table 1) and the

proportion below the 10th percentile falls from 75.2% to 50.0%. Thus, the evolution of new list

fundamentals documented below (increasing left skewness of profitability and right skewness of growth)

is not due to higher frequencies of the tiniest firms. This point is important when we later (in the

concluding section) discuss whether the broadening in the types of firms publicly traded during 1980-

2000 is due to demand or supply conditions.

Finally, with the high rate of new listings for 1980-2000, on average around ten percent of listed

firms are new each year (Table 1). New lists are mostly small, however, and despite the explosion in their

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numbers, the fraction of the aggregate market value of listed firms accounted for by annual new lists is

also small, averaging 2.08% for 1980-2000 and never exceeding 4.1%.

II. Average Profitability and Growth

Table 2 summarizes the evolution of fundamentals (average profitability and growth rates) for the

non-financial new lists of 1973-2000 for the first five years firms are listed. The fundamentals are also

shown for matched cohorts of seasoned non-financial firms. Seasoned firms are defined as NYSE,

AMEX, and NASDAQ firms listed more than five years, and firms already on NASDAQ at the end of the

CRSP startup period (April 1973). Fundamentals for all firms (not shown) are similar to those of

seasoned firms. The samples in Table 2 are smaller than in Table 1 because financial firms are excluded

from Table 2 and because the fundamentals are sometimes missing from the Compustat data source.

The fundamental variables in Table 2 are ratios of aggregates. For example, the profitability in

year t+τ of the new lists of year t, Et+τ/At+τ, is the ratio of aggregate earnings before interest for t+τ of the

new lists of year t divided by their aggregate t+τ assets. In effect, then, we measure fundamentals as if

the new lists of year t are a single firm. Equivalently, ratios of aggregates are size-weighted averages of

the ratios for individual firms. For example, the estimate of new list profitability weights the profitability

of an individual year t new list by the ratio of its t+τ assets to the total t+τ assets of all year t new lists.

Size-weighted averages give more weight to larger firms and so might not provide a picture of

fundamentals for the “typical” firm. But Table 2 is just an introduction to salient characteristics of

fundamentals for new lists and seasoned firms. We later examine time-series of cross-sections of

profitability and growth, which are the core of our story. Finally, our estimates of fundamentals for t+τ

can cover only the firms of year t with Compustat data for t+τ. Firms that disappear before t+τ are not

covered in the estimates.

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A. Growth

New lists grow faster than seasoned firms. The growth rate of total assets, dA/A = (At-At-1)/At-1,

for the seasoned firms of 1973-2000 averages 10.1% per year. The average first-year growth of IPOs is

78.7%, declining rapidly to 20.0% in the fifth listed year. The average first-year growth of non-IPO new

lists is 19.9%, with no systematic tendency in subsequent years. Thus, IPOs initially grow faster but

eventually converge on the growth rates of non-IPO new lists, which in turn grow about twice as fast as

seasoned firms. These results suggest that non-IPO new lists come into the sample while still in a high

growth phase but after the period of extreme initial growth typical of IPOs.

B. Profitability

In the listing year, IPOs are on average more profitable than non-IPO new lists. This is true for

the full sample period and all subperiods in Table 2. For the full sample period, IPO profitability declines

in the years after listing, but E/A rises for non-IPO new lists. As a result, the two groups have similar

average profitability after the second listed year. Thus, as they age, the profitability and growth of IPOs

come to look more like those of non-IPO new lists. More interesting, for the full 1973-2000 period, IPOs

are on average more profitable in the listing year than seasoned firms. But after the listing year, IPO

profitability falls and they become progressively less profitable than seasoned firms.

Figures 2a to 2c give year-by-year details on the average profitability of new lists and seasoned

firms in the first, third, and fifth listed years. The year on the horizontal axis is always the listing year.

For example, plotted at 1973 in Figures 2a to 2c are the 1973, 1975, and 1977 average profitability of the

new lists of 1973 and the seasoned firms of 1973. The figures thus compare the evolution of average

profitability for cohorts of new lists and seasoned firms.

The average profitability of new lists in Figures 2a to 2c varies much more across cohorts than

the average profitability of seasoned firms. Despite this high volatility, there are clear patterns in the

relation between new list profitability and that of seasoned firms. The first-year average profitability of

IPOs (in Figure 2a) is higher than the profitability of seasoned firms in all but two of the first 22 years,

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from 1973 to 1994. In contrast, the first-year profitability of non-IPO new lists tends to be below that of

both IPOs and seasoned firms throughout the sample period. After 1994 the first-year profitability of new

lists (IPOs and non-IPOs) falls progressively further below that of seasoned firms. The first-year

profitability of IPOs goes negative in 1999, for the first time in the sample period. The first-year

profitability of non-IPO new lists is negative in 2000, but the highly volatile first-year profitability of

these firms is also negative in three earlier years.

The decline in IPO profitability in the years after listing is evident in Figures 2b and 2c. In

contrast to the higher listing year average profitability of IPOs in the years up to 1994, IPO average

profitability in the third and fifth listed years tends to be below that of seasoned firms for cohorts after

1980 or perhaps 1978. And after the listing year, IPOs are not systematically more or less profitable than

non-IPO new lists. In short, for at least the last 20 years of the sample period, new lists (IPOs and non-

IPOs) are on average less profitable after their second listed year than seasoned firms.

C. The Small-Firm Depression

Fama and French (1995) document a sustained decline in the profitability of small firms relative

to big firms in the 1980s. Figure 3 confirms that small firms (total assets below the NYSE median) are

more profitable than big firms until 1981. Thereafter, small firms are less profitable than big firms. After

narrowing in 1988-1993, the gap between big and small firm profitability widens dramatically. In 2000,

average E/A is 6.4% for big firms and only 0.7% for small firms. Since new lists are mostly small, it is

interesting to examine whether the relatively low profitability of small firms during the 1980s and 1990s

is related to the flood of small new lists and the low profitability of new lists as they age.1

Figure 3 confirms that much of the small-firm depression of the 1990s is due to new lists. Until

1990, the profitability of small new lists (defined as firms listed within the last five years with total assets

below the NYSE median) is similar to the profitability of small seasoned firms. Thereafter, small

1When we examine fundamentals (profitability and growth rates), we define size in terms of assets, not market equity. Defining size in terms of market equity tends to allocate firms that are large in terms of assets but have low profitability to the small group. As a result, small market equity firms tend to look more like weak firms than when size is defined in terms of assets.

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seasoned firms are only a bit less profitable than big firms, but small new lists are much less profitable.

In 2000, for example, average E/A is 6.4% for big firms and 5.5% for small seasoned firms, but it is a

miserable -8.8% for small new lists. (And keep in mind that we can measure profitability only for firms

that survive.) Skipping the details, the gap between the profitability of big firms and seasoned small firms

narrows further if we restrict seasoned firms to those listed for at least ten years. In fact, with this tighter

definition, seasoned small firms are actually more profitable than big firms in 1992, 1993, and 2000. It is

clear that, with their sustained low profitability, the flood of small new lists in the 1980s and 1990s plays

a substantial role in the sustained low profitability of all small firms.

Finally, Jain and Kini (1994) examine the profitability of the IPOs of 1976-1988. They find that

when firms go public, median IPO profitability is higher than the median profitability of firms in the same

industry. After the IPO, median profitability falls toward that of the industry-matched sample, and the

median investment of IPO firms is higher than for the industry-matched sample. Mikkelson, Partch, and

Shah (1997) report similar results for the IPOs of 1980 to 1983. This earlier IPO evidence is roughly

similar to our results for the IPOs of the late 1970s and early 1980s, but it does not describe IPO

performance later in our sample. In the 1990s, post-listing IPO profitability deteriorates to levels far

below that of seasoned firms. And after 1994, even the first-year profitability of IPOs is lower than the

profitability of seasoned firms. We also show that the new lists of 1980-2000 that are not recent IPOs

look much like aging IPOs; that is, they are less profitable but grow faster than seasoned firms.

III. Cross-Sections of Profitability and Growth

The average profitability and growth of new lists are not necessarily surprising, at least prior to

the profitability plunge after 1994. Thus, it is not surprising that firms have initial public offerings when

profitability is high and they have strong demand for equity capital to finance rapid growth. And if initial

profitability is unusually high, it is not surprising that it falls in the years after listing, as growth causes

firms to deplete their most profitable investment options. The interesting surprises, and the core of our

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story, are in the changes through time in the dispersion and skewness of profitability and growth for new

lists and seasoned firms.

A. Profitability

Figure 4a shows time series of the cross-sections (10th, 25th, 50th, 75th, and 90th percentiles) of

first-year profitability, E/A, for new lists. Until 1978, the 10th to 90th percentiles of new list profitability

cover a rather narrow range (relative to subsequent years) and unprofitable firms are rare. Thereafter, all

percentiles of new list profitability fall. For example, median first-year E/A for the new lists of 1978 is

0.115; it declines to 0.066 in 1990 and 0.025 in 1998, and then drops below 0.0 in 1999 and 2000. Thus,

more than half of the new lists of 1999 and 2000 are unprofitable in their listing year. But the dominant

trait of Figure 4a is the increasing dispersion in first-year profitability, due to increasing left skewness.

The 25th percentile of E/A falls from 0.084 in 1978 to -0.055 in 1990 and -0.362 in 2000. The decline in

the 10th percentile is even more extreme, from 0.073 in 1978 to -0.419 in 1990 and -0.911 in 2000. In

short, during 1980-2000, when new lists are consistently abundant, firms with low – indeed severely

negative – current profitability become progressively more acceptable candidates for public equity

financing.

Figure 4b shows annual cross-sections of profitability for firms listed in the previous five years.

Cumulating over five years provides longer-term perspective on the performance of new lists. Though

smoother, the percentiles of E/A for new lists of the previous five years are similar to those of first-year

E/A. Thus, the increasing dispersion and left skewness of new list profitability are not just a listing-year

phenomenon. Skipping the details, we can also report that increasing dispersion and left skewness are

common to the evolution of profitability for both IPO and non-IPO new lists.

Typically, more than 95% of new lists are small (assets below the NYSE median), so small firms

dominate the distributions of profitability in Figures 4a and 4b. (Indeed, since they are so similar to

Figures 4a and 4b, we do not include plots for small new lists.) Figure 4c shows that big new lists do not

share the extreme profitability traits of their small counterparts. Though the percentiles of E/A for big

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new lists of the previous five years decline a bit through time, the cross-sections are rather compact and

do not show the strong left skewness that characterizes the distributions for all new lists.

Averaging over 1980-2000, about ten percent of listed firms are new each year. How does this

flood of new lists affect the cross-sections of profitability for seasoned firms and all listed firms? After

they have been listed for five years, we reclassify new lists as seasoned. The cross-sections of

profitability for all seasoned firms in Figure 5a become progressively left skewed during 1980-2000, but

less so than for new lists. This is not surprising. Economic logic – along with the evidence below on the

low survival rates of new lists – says that firms cannot sustain large losses indefinitely. As in the case of

new lists, the profitability cross-sections for all seasoned firms are dominated by small firms. Figure 5b

shows that the dispersion of profitability for big seasoned firms increases only a bit through time, and the

distribution remains relatively compact and roughly symmetric. The median profitability of seasoned big

firms is stable, 0.075 in 1973 and 0.073 in 2000, but the most profitable seasoned big firms become a bit

more profitable, and the least profitable become a bit less profitable.

The cross-sections of profitability for seasoned firms listed at least ten years (Figure 5c) show

that much of the increasing left skewness of profitability observed in Figure 5a (seasoned firms listed at

least five years) is driven by unprofitable new lists. Tightening the definition of seasoned firms –

reducing the impact of aging new lists – has little effect on the right tail of the distribution; there is little

difference between the 75th and 90th percentiles in Figures 5a and 5c. Tightening the definition does,

however, dampen the distribution’s left skewness. For example, the 10th percentile of E/A for firms listed

more than five years (Figure 5a) falls from 3.5% in 1978 to -11.4% in 1990 and -17.9% in 2000. The 10th

percentile for firms listed more than ten years (Figure 5c) falls only about half as much, from 3.6% in

1978 to -5.2% in 1990 and -9.1% in 2000.

Figure 6 shows how new lists and seasoned firms combine to produce the cross-sections of

profitability for all listed firms. From 1980 to 2000, the distribution of profitability for all listed firms

drifts down and becomes increasingly skewed left, more so than for seasoned firms but less strongly than

for new lists. This is not surprising, given the evidence on the evolution of profitability for new lists and

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seasoned firms. Our point is that the mostly small new lists of 1980-2000 play an important role in the

evolution of the cross-section of profitability for all listed firms (the population of firms that get the

benefits of unrestricted risk sharing) both because new lists are so numerous and because aging new lists

are influential in the evolution of profitability for seasoned firms.

B. Growth Rates

There are also substantial changes in the growth characteristics of listed firms during the 1980-

2000 period of abundant new lists. Like profitability, the distribution of growth for all listed firms

(Figure 7a) becomes more disperse. While profitability becomes more left skewed, growth becomes more

right skewed. Median growth does not change much during 1973-2000, fluctuating around 10% per year

(close to the size-weighted average growth of seasoned firms in Table 2). But firms with shrinking assets

become more common. In 1973 about 10% of listed firms decrease in size from one year to the next;

after 1981, typically more than 25% shrink from one year to the next. Increasing right skewness is,

however, the obvious feature of the cross-section of growth rates. The 75th percentile of dA/A rises from

24.3% in 1973 to 42.3% in 2000; the 90th percentile rises from 43.6% to 184.2%.

Figure 7b shows that the increasing right skewness of asset growth for all listed firms is much

subdued in the cross-section of seasoned firms (listed more than five years). Thus, the more extreme

skewness observed for all listed firms is due to new lists. Indeed, to accommodate the increasing right

skewness of dA/A for new lists of the previous five years, the upper end of the scale in Figure 7c must be

stretched to 6.0 (600 percent per year), versus 2.2 for all listed firms in Figure 7a.

Figures 8a and 8b show that the cross-sections of dA/A for IPO and non-IPO new lists are

skewed to the right, but the asymmetry is more extreme for IPOs. And the right skewness of dA/A

observed for new lists of the previous five years (in Figures 8a and 8b) is dwarfed by the skewness of

growth rates in the first listed year (in Figures 9a and 9b), especially for IPOs. One quarter of the IPOs in

1999 have one-year asset growth rates that exceed 1100 percent, and ten percent of the growth rates

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exceed 3000 percent. The 75th and 90th percentiles of one-year asset growth rates for IPOs in 2000, 682

percent and 1375 percent, are smaller, but still extraordinary.

Perhaps the extreme initial growth of IPOs is not surprising. Many firms go public because they

are in a high growth phase and have strong demands for external equity financing. Toward the end of the

sample period, many firms (especially internet related firms) go public early in their life cycles, when

they have few tangible assets. Enormous asset growth in percentage terms is not surprising from a base

close to zero. But Figures 8a and 8b show that strong right skewness characterizes cross-sections of new

list (IPO and non-IPO) growth rates for the first five listed years. And the increasing right skewness

occurs while there are fewer and fewer new lists in the extreme left tail of the size distribution (Table 1).

Moreover, Figure 8c shows that many big new lists, with assets above the NYSE median, experience

extreme growth toward the end of our sample. Each year from 1995 to 2000, one quarter of the big new

lists of the last five years have annual asset growth rates above 65% and ten percent have growth rates

above 145%. In 2000, the 10th percentile for big firms listed in the last five years is 814%.

Though right skewness is the dominant characteristic of new list growth, there is also interesting

action in the left tail of the distribution. The 10th percentile of first-year dA/A for IPOs is always positive

(Figure 9a); few IPOs shrink in their first listed year. And for IPOs, all percentiles of first-year dA/A

increase in the 1980s and 1990s; stronger first-year growth is a general characteristic of the IPOs of later

years. In contrast, though difficult to see because of the extreme scale of the graphs, after 1981 about

25% of non-IPO new lists have shrinking assets even in the listing year (Figure 9b). Moreover, after

1981 about 25% of the IPOs of the previous five years have shrinking assets (Figure 8a). And if

anything, the median and lower percentiles of asset growth for new lists (IPOs and non-IPOs) of the

previous five years decline after 1981 (Figures 8a and 8b). These results suggest that the increasingly low

and left skewed post-listing profitability of the new lists of the last 20 years eventually produces a

substantial fraction of new lists that begin to shrink soon after listing.

In sum, during 1980-2000, more and more new firms with high growth and low profitability

become viable candidates for unrestricted risk sharing via publicly held equity. Because these new firms

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are plentiful, their characteristics eventually dominate the characteristics of listed firms (the population of

firms that get the benefits of unrestricted risk sharing). But new lists are mostly small, and the changes

they induce in the characteristics of listed firms are largely special to small firms. Profitability and

growth also become more disperse for large firms, large-firm growth becomes somewhat right skewed,

but large-firm profitability does not become noticeably left skewed. In general, the changes in growth

and profitability for large firms are dwarfed by those for small firms, especially small new lists. And with

the flood of new lists after 1979, more and more small seasoned firms are aging new lists with continuing

high growth and low profitability. In the end, then, the central role in the changing characteristics of

listed firms falls to new lists, especially small new lists.

IV. Survival Rates

Some of the changes in profitability discussed above may be a spurious result of accounting rules.

For example, the high profitability of the early sample years may be due in part to the high inflation of the

1970s and early 1980s, which causes profitability to be overstated because earnings grow with inflation

but assets are measured at historical cost. Another common story is that profitability is understated later

in the sample period because firms invest more in intangible assets like R&D and human capital, which

are expensed rather than depreciated over time. We doubt that vagaries of accounting can explain the

major changes in profitability we observe – the increasing left skewness of E/A for small firms and

especially small new lists, which is not shared by big firms. In any case, there is a simple test. If the

increasing skewness of profitability is a matter of accounting rules, it should not be associated with

changes in survival rates. But if the left skewness of profitability is real, survival rates, especially for

small firms and small new lists, are likely to decline through time.

Table 3 summarizes average survival rates, specifically, percents of firms still trading after ten

years and percents lost within ten years in mergers or through delisting for poor performance. Year-by-

year details are in Figures 10 and 11. Survival rates indeed decline through time. For seasoned firms, the

ten-year survival rate falls about 15 percentage points, from 59.5% for the 1973 cohort to 44.3% for the

15

cohort of 1991 (Figure 10a). Survival rates for new lists are close to those of seasoned firms early in the

sample period, but new list survival rates fall more through time. The ten-year new list survival rate falls

more than 25 percentage points, from 64.4% for the new lists of 1973 to 37.0% for the 1991 cohort

(Figure 10a). Though there are no clear trends after 1981, survival rates fall more after 1973 for non-IPO

new lists than for IPOs. The ten-year survival rate for IPOs falls from 56.7% for the cohort of 1973

(Figure 10b) to an average of 39.7% for the 1980-1991 cohorts (Table 3). The decline for non-IPO new

lists is from 68.7% to 30.6%. Thus, for 1980-1991 (when new lists are plentiful and their profitability

declines, becomes more disperse, and more left skewed), only about 40% of IPOs and 31% of non-IPO

new lists survive more than ten years.

Firms disappear from CRSP in mergers or because poor performance causes them to be delisted.

Merger targets include strong and weak firms, so takeovers are ambiguous signals about performance.

There is, however, no ambiguity about the poor health of firms delisted for cause. And, in line with the

profitability evidence, new lists are more likely to be delisted for poor performance than seasoned firms.

Figure 11a shows that the rate at which seasoned firms are delisted for poor performance

increases through time; 13.5% of the seasoned firms of 1973 are delisted within ten years (Figure 11a),

and the average ten-year drop rate rises to 18.4% for the seasoned cohorts of 1980-1991 (Table 3). The

drop rates for new lists, which are always above those for seasoned firms, rise sharply from 1973 to

roughly 1980. Thereafter, the new list drop rates are too variable to identify a clear trend. The ten-year

drop rate for the new lists of 1973, 14.4%, is a bit higher than for seasoned firms, but the average for the

cohorts of 1980-1991 is about twice as high, 40.2%. Thus, about one in five of the seasoned firms of

1980-1991 is dropped within ten years for poor performance, versus two in five new lists. The 1973 IPOs

and non-IPO new lists (Figure 11b) have similar ten-year drop rates, 13.3% and 15.0%, but the rate for

non-IPO new lists rises more thereafter, averaging 47.5% for 1980-1991 cohorts, versus 33.5% for IPOs

16

(Table 3). Thus, almost half of the non-IPO new lists of 1980-1991 are dropped for poor performance

within ten years of listing, versus (a still impressive) one-third of IPOs.2

The profitability of big seasoned firms becomes only a bit more disperse during the 1980s and

1990s, and it does not show the left skewness observed for small seasoned firms (Figure 5b). Not

surprisingly, then, the (always low) ten-year drop rate for big seasoned firms rises only slightly, from

1.7% for the cohorts of 1973-1979 to 2.1% for 1980-1991 (Table 3). The profitability of big new lists

(Figure 4c) is more disperse than that of big seasoned firms but much less disperse and left skewed than

that of all new lists (Figure 4a) and, by implication, small new lists. Thus, it is also not surprising that

ten-year drop rates for big new lists, which average 7.1% for 1973-1979 and 6.7% for 1980-1991, are

higher than the rates for big seasoned firms but much lower than for small new lists. Mergers are the

main exit route for big firms; 27.4% of the 1973-1991 cohorts of big seasoned firms and 36.4% of big

new lists are absorbed within ten years in mergers.

In sum, the evidence on performance delistings conforms nicely with the profitability results.

Specifically, with the surge in new lists after 1979, the cross-section of profitability for listed firms drifts

down and becomes progressively more left skewed. These changes in profitability are mostly due to

small firms and they are stronger for new lists than for seasoned firms. Likewise, performance delistings

increase after 1979, the increase is primarily due to small firms, and it is larger for new lists than for

seasoned firms.

V. Profitability for Outcome Groups of New Lists

The analysis above presumes that firms delisted for poor performance are from the fattening left

tail of the cross-section of profitability. Table 4 provides evidence. The table shows the average

profitability and growth of new lists and seasoned firms for one, three, and five years before each of the

possible outcomes, survival, merger, or performance delisting. For example, current average profitability

2 Some readers have asked how new lists fare in the difficult markets of 2000 and 2001. The one-year delist rate for the cohort of 2000, 3.0%, and the two-year rate for the 1999 cohort, 9.2%, are not extraordinary. They are lower, for example, than five of the ten one-year rates and eight of the two-year rates for the cohorts of 1981-1990.

17

is shown for portfolios of firms listed within the previous five years that delist for cause within the next

one, three, and five years. Three merger portfolios are defined in the same way. And there are three

complement portfolios that include new lists of the previous five years that survive at least through the

next one, three, and five years. Table 4 also shows average profitability for seasoned firms (listed at least

five years) that merge within, delist within, or survive beyond the next one to five years.

The general decline in profitability from 1973-1979 to 1990-2000 hits different groups of firms at

different times and to different extents. In the 1970s and 1980s, survival implies strong average profits

for seasoned firms. IPO survivors are even more profitable and grow about three times faster than

seasoned survivors. Seasoned survivors share the general decline in profitability from 1980-1989 to

1990-2000, but the decline is stronger for IPO survivors. In the 1990s, when E/A averages 6.1% to 6.3%

for seasoned survivors, it is 6.0% for IPOs that survive beyond the next five years, and only 4.6% for

those that survive beyond one year. The decline in profitability shows up earlier among non-IPO new

lists that survive. For 1973-1979, the average profitability of non-IPO new list survivors is similar to that

of seasoned survivors. By the 1980s (and in 1990s), the average profitability of non-IPO new list

survivors – while still respectable – is 1.5% to 2.0% lower than for seasoned survivors. Overall, however,

survivors among new lists and seasoned firms tend to be profitable with strong growth, which is not

surprising. Survivors are, however, declining proportions of all seasoned firms and new lists.

The evidence on the profitability and growth of firms lost in mergers is more interesting and

novel. Merger rates do not trend much during the sample period. During 1973-1991, on average about

one in three seasoned firms and one in four new lists are absorbed in mergers within ten years (Table 3).

But the characteristics of merged firms change. The seasoned firms of 1973-1979 lost in mergers are

about as profitable and grow nearly as fast as seasoned survivors (Table 4). But in the 1980s and 1990s,

the average profitability and growth of merged seasoned firms fall relative to seasoned survivors. Thus,

through time the merger arrow is aimed more at mediocre seasoned firms. (This is a likely explanation for

the low pre-announcement stock returns of merged firms (Mitchell and Stafford (2000)).)

18

The picture for IPOs lost in mergers is a bit different. In the 1980s and 1990s, their average

profitability and growth for years far in advance of merger are high, like those of IPOs that survive.

Average profitability deteriorates as merger approaches, but growth remains strong. These results suggest

that merged IPOs tend to be firms that continue to grow despite poor returns on investment. Non-IPO

new lists lost in mergers also experience declining profitability in the years preceding merger.

As expected, the biggest effects of the downward drift and increasing left skewness of

profitability after 1979 show up in the expanding set of firms delisted for poor performance. They have

terrible earnings for five years before delisting, and profitability deteriorates as delisting approaches

(Table 4). New lists (IPOs and non-IPO) delisted for poor performance are less profitable than delisted

seasoned firms. Consistent with the increasing left skewness of profitability, the poor profitability of

delisted firms (seasoned and new lists) becomes more extreme from 1980-1989 to 1990-2000. And the

delisted firms of 1990-2000 have negative and declining profitability for five years before delisting.

The average growth of firms delisted for poor performance is interesting. Delisted seasoned

firms have low growth in the years preceding delisting and shrinking assets in the delisting year (Table 4).

More surprising, but in line with the results for merged new lists, the new lists of 1980-2000 delisted for

poor performance on average grow strongly in the years preceding delisting, despite typically negative

profitability; they do not begin to shrink until the delisting year (if then). Thus, the high delist rates of

new lists tend to be the result of growth un-rewarded by earnings. These results suggest that new lists

delisted for poor performance tend to be firms that (at least on an ex post basis) have wasted resources on

unprofitable investments. And the suggestion is stronger than for merged new lists.

VI. Conclusions

After 1979, the rate at which new firms are listed on the major U.S. stock exchanges jumps from

about 140 to near 600 per year. The profile of new lists also changes. Profitability and growth become

progressively more disperse, profitability becomes more left skewed, and growth becomes more right

skewed. The result is a sharp decline in new list survival rates due to delistings for poor performance.

19

The flood of new lists with low long-term profitability and high growth eventually causes seasoned firms

to acquire subdued versions of the profitability and growth characteristics of new lists, with a

corresponding decline in survival rates.

The dramatic changes in the profitability and growth characteristics of listed firms during 1980-

2000 are largely due to small firms. The changes are nevertheless important for understanding the market

for listed firms, in particular, the kind of firms that are viable candidates for public equity financing. Our

results say that changes in demand or supply conditions lead to increased sharing of the risks of firms

with high growth and low profitability, a combination that produces a large dose of unhappy eventual

outcomes. And these changes occur slowly over the post-1979 period. They are not special to the high-

tech and internet-related new lists of last few years.

The broadening of the kinds of firms publicly traded during 1980-2000 may be due to changes in

supply conditions, such as lower monitoring costs and reductions in other costs of holding and trading

small, relatively unprofitable, but rapidly growing firms. If changes in supply conditions are responsible,

and if new firms are properly priced, expanding the set of firms eligible for public trading enhances the

efficiency of the economy’s aggregate investment and risk sharing.

There is, of course, controversy on the pricing issue. Behavioralists, like Ritter (1991) and

Loughran and Ritter (1995), argue that IPOs are overpriced and yield abnormally low post-listing returns;

in effect, there is too much investment in IPOs and their activities. Others, like Fama (1998) and Brav,

Geczy, and Gompers (2000), argue that the way returns are risk-adjusted has a big effect on inferences

about IPO pricing, rendering all inferences shaky. In a provocative recent paper, Schultz (2002) argues

that because IPOs bunch in periods following high returns, the average return on the typical IPO is likely

to appear low, even if IPOs are properly priced. Suffice it to say that the pricing issue remains open.

Is the broadening of the types of publicly traded firms during 1980-2000 due to demand or supply

conditions? This is a big question, and we only offer some possibilities. There are many changes in

corporate governance in the 1980s and 1990s, perhaps including improvements in monitoring technology.

The breakdown of fixed commissions and the introduction of NASDAQ and its automated quotation

20

system reduce the costs of trading and so increase the liquidity of traded firms. General increases in

liquidity and the efficiency of monitoring (supply conditions) are likely to expand the class of firms that

are viable candidates for public equity financing.

There is, however, reason to judge that changes in demand also play an important role. The

broadening of the class of firms publicly traded during 1980-2000 is not toward smaller size. If anything,

the average size of newly public firms increases, and there is a general thinning of the extreme left tail of

the size distribution of new lists (Table 1). Rather the broadening is toward firms with lower initial

profitability and higher growth. And the key is lower profitability; these are probably firms that in the

past would be judged negative net present value investments and so not viable candidates for public

equity financing. What changes to give them positive value? Fama and French (2002) argue that the rise

in price-earnings ratios during 1980-2000 is largely due to declining expected stock returns, or

equivalently, a lower cost of equity capital. With a lower cost of capital, less profitable firms become

positive net present value projects and viable candidates for public equity financing.

Finally, our sample period (1973-2000) is relatively short, and it is reasonable to ask whether

there are similar “hot” markets for new lists with similar growth and profitability characteristics in earlier

periods. Other evidence suggests that this is not the case. Gompers and Lerner (2001) study the IPOs of

the 1935-1972 period preceding NASDAQ. Their sample is fairly complete; it is not restricted to IPOs

listed on major exchanges. They find that from 1935 to 1945, there are few IPOs (typically less than ten

per year). Prior to 1959, there are no hot markets; the largest number of IPOs in any year is 51. From

1959 to 1962 there is a spurt of IPOs, ranging from 122 in 1959 to 321 in 1961. There is a bigger surge

from 1968 to 1972, ranging from 204 IPOs in 1971 to 683 in 1969, numbers more like those of the

sustained hot market of the last 20 years of our sample.

Most of the IPOs of the pre-NASDAQ period are not on Compustat in their IPO year, so we do

not have information about initial profitability and growth. But the firms on NASDAQ by the end of the

CRSP startup period (April 1973), which we classify as seasoned, and the non-IPO new lists of the early

NASDAQ years, are probably heavy with the surviving IPOs of the 1968-1972 hot market. In the early

21

years of NASDAQ, seasoned small firms and non-IPO new lists tend to be more profitable than all listed

firms (Table 2 and Figure 3), and the profitability and growth of seasoned small firms and non-IPO new

lists do not show the high dispersion and skewness that evolve over later years (Figures 4 to 9). Indeed

the fact that the profitability and growth characteristics of new lists (IPOs and non-IPO) evolve slowly

during the rather continuous hot new list market of 1980-2000 suggests that we are indeed observing

changes in the kinds of firms that are viable candidates for public equity financing.

22

References

Brav, Alon, Christopher Geczy, and Paul A. Gompers, 2000, Is the Abnormal Return Following Equity Issuances Anomalous?, Journal of Financial Economics 56, 209-249.

Campbell John Y., Martin Lettau, Burton G. Malkiel, and Yexiao Xu, 2001, Have individual stocks

become more volatile? An empirical investigation of idiosyncratic risk, Journal of Finance 56, 1-43.

Fama, Eugene F., 1998, Market Efficiency, Long-Term Returns, and Behavioral Finance, Journal of

Financial Economics, 49, 283-306. Fama, Eugene F., and Kenneth R. French, 1995, Size and book-to-market factors in earnings and returns,

Journal of Finance 50, 131-155. Fama, Eugene F., and Kenneth R. French, 2001, Disappearing dividends: changing firm characteristics or

lower propensity to pay, Journal of Financial Economics 60, 3-43. Fama, Eugene F., and Kenneth R. French, 2002, The equity premium, Journal of Finance 57, 637-659. Gompers, Paul A., and Lerner Josh, 2001, The really long-run performance of initial public offerings: The

pre-NASDAQ evidence, Working paper 8505, National Bureau of Economic Research. Jain, Bharat A., and Omesh Kini, 1994, The post-issue operating performance of IPO firms, Journal of

Finance 49 (December), 1699-1726. Loughran, Tim, and Jay R. Ritter, 1995, The new issues puzzle, Journal of Finance 50, 23-51. Mikkelson, Wayne H., M. Megan Partch, and Kshitij Shah, 1997, Ownership and operating performance

of companies that go public, Journal of Financial Economics 44, 281-307. Mitchell, Mark L., and Erik Stafford, 2000, Managerial decisions and long-term stock price performance,

Journal of Business 73, 287-329. Ritter, Jay R., 1991, The long-run performance of initial public offerings, Journal of Finance 46, 3-27. Schultz, Paul H., 2002, Pseudo market timing and the long-run performance of IPOs, Working paper,

Notre Dame.

Table 1 -- Counts and Size Statistics for New Lists

Firms are defined as new lists when they are first added to the CRSP database. Firms trading on NASDAQ by April 1973 are not new lists. A new list is defined as an IPO if it is in the IPO sample provided by Jay Ritter (an updated version of that in Loughran and Ritter (1995)) and its CRSP listing month is no more than three months before and ten months after its reported IPO. Firms is the average number of new lists, IPOs, or non-IPO new lists in the indicated period. A firm’s NYSE and local ME percentiles measure its market equity relative to firms on the NYSE and its listing exchange in the month it is listed. The percent of names for year t is the number of newly listed firms divided by the monthly average of the total number of listed firms (x 100). The percent of ME for year t is the sum of the initial market equity of newly listed firms divided by the monthly average of the total market equity of all listed firms (x 100). The results for each period are simple averages of annual values. We use only firms with CRSP share codes of 10 and 11 (ordinary shares). All New Lists IPOs Non-IPO New Lists Ave Percentile Percent of Ave Percentile Percent of Ave Percentile Percent of Firms NYSE Local Names ME Firms NYSE Local Names ME Firms NYSE Local Names ME 1973-2000 486 12.1 50.3 8.26 1.66 287 15.1 57.9 4.72 1.13 200 8.5 43.1 3.53 0.53 1980-2000 598 13.1 52.1 9.95 2.08 372 15.8 57.9 6.09 1.46 226 8.5 43.4 3.86 0.62 1973-1979 149 9.3 45.2 3.18 0.39 30 13.2 57.8 0.64 0.14 119 8.7 42.2 2.53 0.26 1980-1989 573 8.2 48.3 10.38 1.95 306 10.6 55.3 5.48 1.10 267 5.9 41.3 4.90 0.85 1990-2000 622 17.5 55.5 9.56 2.20 432 20.4 60.3 6.63 1.79 189 10.9 45.2 2.93 0.40 Percent of Names in NYSE Percentile Range Percent of Names in Local Exchange Percentile Range ≤ 0 ≤ 5 ≤ 10 ≤ 20 ≤ 30 ≤ 40 ≤ 50 ≤ 5 ≤ 10 ≤ 20 ≤ 30 ≤ 40 ≤ 50 All New Lists 1973-1979 12.1 67.0 75.2 85.3 89.7 92.9 96.5 4.4 9.8 22.1 34.4 47.0 58.8 1980-1989 8.5 66.0 78.1 88.5 93.2 95.9 97.7 1.0 3.5 13.1 26.8 41.4 55.4 1990-2000 0.0 33.2 50.0 70.1 81.2 88.0 92.4 0.7 2.3 9.4 20.1 31.5 42.0 IPOs 1973-1979 5.9 48.5 59.4 78.0 86.9 90.4 95.9 2.3 2.8 10.7 18.9 29.9 38.4 1980-1989 3.4 55.6 69.3 83.6 90.6 94.5 96.9 0.1 1.1 6.3 16.8 30.0 44.5 1990-2000 0.1 24.5 40.1 63.4 76.9 85.4 91.0 0.2 1.4 6.6 14.7 24.5 33.7 New Lists that are Not IPOs 1973-1979 13.7 71.0 78.6 86.2 89.4 92.8 96.4 4.9 11.5 25.1 38.7 51.4 63.8 1980-1989 13.2 76.5 86.5 93.3 95.7 97.3 98.3 1.9 5.8 20.0 37.3 53.1 66.6 1990-2000 0.0 51.9 71.1 85.3 91.1 94.3 96.2 1.4 4.2 15.2 31.4 46.6 60.2

Table 2 – Average Percent Profitability (E/A) and Percent Growth in Assets (dA/A) for Seasoned Firms, IPOs, and Non-IPO New Lists Firms are defined as new lists when they are first added to the CRSP database. Firms trading on NASDAQ by April 1973 are not new lists. A new list is defined as an IPO if it is in the IPO sample provided by Jay Ritter (an updated version of that in Loughran and Ritter (1995)) and its CRSP listing month is no more than three months before and ten months after its reported IPO. The IPO and non-IPO new list results are for the fiscal year that includes the listing month (year 1) and for the next four years (2-5). The year 1 results for Seasoned firms (listed at least five years) in year t are for all seasoned firms with the necessary CRSP and Compustat data in year t. The results for forward years 2-5 are for firms with data in year t and in year t+1, t+2, t+3, or t+4. Firms is the average number of new lists or seasoned firms with the necessary CRSP and Compustat data in year t. The percent growth in assets for year t+τ, dA/A, is 100 x (At+τ-At+τ-1)/At+τ-1. Profitability, E/A, is earnings before interest divided by assets, in percent. We calculate annual ratios as the aggregate value of the numerator divided by the aggregate value of the denominator. The results for each period are simple averages of the annual ratios. We use only non-financial firms (we exclude SIC codes 6000-6999) with CRSP share codes of 10 and 11 (ordinary shares). Average Profitability, E/A Average Growth in Assets, dA/A Forward Year Forward Year Firms 1 2 3 4 5 1 2 3 4 5 Seasoned 1973-2000 2824 7.5 7.4 7.4 7.3 7.2 10.1 9.9 9.7 9.8 10.0 1980-2000 2812 7.3 7.1 7.0 6.9 6.8 9.5 9.3 9.1 9.2 9.6 1973-1979 2858 8.0 8.2 8.4 8.4 8.4 11.7 11.6 11.3 11.6 11.1 1980-1989 2631 8.4 8.1 7.6 7.2 6.9 10.0 9.7 8.8 8.5 8.9 1990-2000 2977 6.3 6.2 6.3 6.5 6.6 9.1 9.0 9.4 10.0 10.5 IPOs 1973-2000 209 8.2 6.9 6.1 5.0 5.7 78.7 39.8 32.8 29.2 20.0 1980-2000 277 6.9 5.9 4.9 4.4 5.1 58.9 33.2 32.6 23.2 18.9 1973-1979 5 12.0 10.0 9.1 6.4 7.3 138.1 58.5 33.1 44.7 22.8 1980-1989 180 10.5 9.0 7.1 6.2 5.9 62.4 32.9 27.6 21.1 15.1 1990-2000 366 3.7 2.7 2.5 2.2 3.8 55.7 33.5 38.2 25.8 24.3 Non-IPO New Lists 1973-2000 71 4.4 5.7 5.9 6.8 5.6 19.9 19.3 16.4 21.4 17.6 1980-2000 83 2.8 4.8 4.8 6.5 4.7 16.6 15.5 15.3 21.1 16.7 1973-1979 34 9.2 8.2 8.6 7.8 7.7 29.7 30.2 19.4 22.1 19.8 1980-1989 93 4.9 6.2 5.1 5.8 4.4 18.8 16.7 13.1 25.4 9.6 1990-2000 74 0.9 3.5 4.5 7.4 5.1 14.6 14.2 17.8 15.8 27.0

Table 3 – Average Percent of Firms that Survive for Ten Years, or that Merge or Delist for Cause within Ten Years Firms are defined as new lists when they are first added to the CRSP database. Firms trading on NASDAQ by April 1973 are not new lists. A new list is defined as an IPO if it is in the IPO sample provided by Jay Ritter (an updated version of that in Loughran and Ritter (1995)) and its CRSP listing month is no more than three months before and ten months after its reported IPO. Seasoned firms are those listed at least five years. The year t percent of new lists that survive is the fraction of firms listed in year t that continue to trade in t+10. The year t percent of new lists that merge (CRSP delist codes 200-399) or delist for cause (delist codes of 400 and above) is the fraction of firms listed in year t that merge or delist within ten years. The year t percents of firms in other categories that survive, merge, or delist for cause are defined analogously. The results for each period are simple averages of annual percents. The Small and Big size groups include firms with assets below or above the median NYSE firm. We use only firms with CRSP share codes of 10 and 11 (ordinary shares). All Firms Seasoned Firms All New Lists IPOs Non-IPO New Lists All Small Big All Small Big All Small Big All Small Big All Small Big Survive 73-91 47.6 43.4 69.9 51.5 46.5 70.7 40.1 39.6 56.7 42.3 41.5 62.7 37.3 36.9 64.0 73-79 53.5 49.3 72.0 54.4 49.9 72.5 48.2 47.9 54.8 46.8 45.3 70.0 48.7 48.7 69.4 80-91 44.1 40.0 68.6 49.9 44.5 69.6 35.4 34.8 57.8 39.7 39.2 59.6 30.6 30.1 61.3 Merged 73-91 31.4 32.1 28.1 32.7 33.9 27.4 25.0 24.8 36.4 28.7 29.0 26.6 22.8 22.5 32.3 73-79 33.6 35.2 26.3 33.9 36.1 25.8 26.1 26.0 38.1 32.0 33.2 20.0 24.5 24.1 27.8 80-91 30.1 30.3 29.1 31.8 32.7 28.3 24.4 24.1 35.4 26.8 26.5 29.4 21.9 21.5 34.5 Delisted for Cause 73-91 21.0 24.5 2.0 15.9 19.3 1.9 34.9 35.6 6.9 29.0 29.6 10.7 39.9 40.6 3.7 73-79 12.9 15.4 1.7 11.6 14.0 1.7 25.7 26.1 7.1 21.2 21.4 10.0 26.8 27.2 2.8 80-91 25.8 29.7 2.2 18.4 22.9 2.1 40.2 41.1 6.7 33.5 34.3 11.0 47.5 48.4 4.2

Table 4 – Average Profitability (E/A) and Growth (dAt/At) for New Lists and Seasoned Firms that Survive, Merge, or Delist for Cause Profitability, E/A, is earnings before interest divided by assets, in percent. Growth, dA/A = 100 x (At – At-1)/At-1, is the percent change in assets. We calculate annual ratios as the aggregate value of the numerator divided by the aggregate value of the denominator. The results for each period are simple averages of the annual ratios. A firm is defined as a new list for the first five years it is in the CRSP database. Thus, year t profitability for new lists that survive one year describes firms that were listed in the last five years and that continue to trade in the year after t. Similarly, new lists that merge (CRSP delist codes 200-399) or are delisted for cause (delist codes of 400 and above) in the next N (1-5) years include only firms listed in the last five years that are merged or delisted within the next τ years. Firms is the average number of new lists or firms that survive at least five years, or that merge or delist for cause within five years. We use only non-financial firms (we exclude SIC codes 6000-6999) with CRSP share codes of 10 and 11 (ordinary shares). Seasoned Firms IPOs Non-IPO New Lists Firms 5 3 1 Firms 5 3 1 Firms 5 3 1 E/A Firms that Survive at Least another N x 12 Months 73-79 2292 8.1 8.1 8.1 9 12.0 11.9 11.8 76 7.3 7.4 7.5 80-89 1925 8.5 8.4 8.4 421 9.4 9.2 8.9 210 6.7 6.7 6.6 90-00 2098 6.1 6.3 6.2 748 6.0 5.4 4.6 181 4.7 4.8 4.4 Firms that Merge within N x 12 Months 73-79 452 7.9 8.1 8.1 1 13.8 13.3 0.0 10 9.4 10.5 6.6 80-89 490 7.7 7.7 7.5 88 8.7 8.2 5.4 36 7.3 6.2 4.2 90-00 489 5.0 5.0 4.4 219 6.2 5.3 2.3 36 2.8 2.6 0.5 Firms that Delist for Cause within N x 12 Months 73-79 114 4.8 3.5 0.7 3 -45.4 -29.8 -145.9 7 7.4 2.2 -34.1 80-89 215 2.9 2.0 -3.9 101 1.5 -0.2 -25.2 82 -0.9 -3.1 -6.6 90-00 307 -1.6 -4.2 -10.4 158 -1.2 -6.2 -34.1 89 -6.2 -12.4 -23.4 dA/A Firms that Survive at Least another N x 12 Months 73-79 2292 11.8 11.8 11.7 9 24.4 24.1 24.1 76 23.0 23.5 24.5 80-89 1925 10.2 10.2 10.1 421 39.2 38.9 38.5 210 16.8 17.5 17.4 90-00 2098 5.9 7.0 8.1 748 23.1 26.9 29.3 181 7.3 8.8 13.1 Firms that Merge within N x 12 Months 73-79 452 10.6 10.3 8.4 1 38.4 38.2 0.0 10 32.6 31.8 21.6 80-89 490 8.0 7.2 4.9 88 35.2 33.3 46.4 36 18.2 11.8 6.6 90-00 489 6.3 4.6 4.9 219 25.2 20.4 17.7 36 7.0 6.2 28.5 Firms that Delist for Cause within N x 12 Months 73-79 114 7.0 3.2 -1.7 3 -27.9 48.8 -67.7 7 30.6 69.4 -9.0 80-89 215 8.2 11.0 -6.4 101 56.8 70.8 27.0 82 25.2 24.3 -3.0 90-00 307 2.0 3.7 -7.4 158 20.2 22.3 -14.3 89 11.3 17.9 12.5

Figure 1- Number of New Lists

0

200

400

600

800

1000

1200

1973 1978 1983 1988 1993 1998

Year

Firm

s New ListsIPOsNon-IPOs

Figure 2a - Profitability in Year 1 for New Lists and Seasoned Firms

-10

-5

0

5

10

15

20

1973 1978 1983 1988 1993 1998

Year

E/A

Seasoned FirmsIPOsNon-IPO New Lists

Figure 2b - Profitability in Year 3 for New Lists and Seasoned Firms

-10

-5

0

5

10

15

20

1973 1978 1983 1988 1993 1998

Year

E/A

Seasoned FirmsIPOsNon-IPO New Lists

Figure 2c - Profitability in Year 5 for New Lists and Seasoned Firms

-10

-5

0

5

10

15

20

1973 1978 1983 1988 1993

Year

E/A

Seasoned FirmsIPOsNon-IPO New Lists

Figure 3 - Profitability for All Big Firms, and All, Seasoned (> 5 Years), and Newly Listed Small Firms (≤ 5 Years)

-12

-8

-4

0

4

8

12

1973 1978 1983 1988 1993 1998

Year

E/A

All Big FirmsAll Small FirmsSeasoned SmallNewly Listed Small

Figure 4a - Percentiles of Year 1 Profitability for New Lists

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

1973 1978 1983 1988 1993 1998

Year

E/A

10%

25%

50%

75%

90%

Figure 4b - Percentiles of E/A for New Lists of the Last Five Years

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

1973 1978 1983 1988 1993 1998

Year

E/A

90%

75%

50%

25%

10%

Figure 4c - Percentiles of E/A for Big New Lists of the Last Five Years

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1973 1978 1983 1988 1993 1998

Year

E/A

90%75%

50%

25%

10%

Figure 5a - Percentiles of Profitability for All Seasoned (> 5 Years) Firms

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1973 1978 1983 1988 1993 1998

Year

E/A

10%

25%

50%

75%

90%

Figure 5b - Percentiles of Profitability for Big Seasoned (> 5 Years) Firms

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1973 1978 1983 1988 1993 1998

Year

E/A

10%25%50%75%90%

Figure 5c - Percentiles of Profitability for All Seasoned (> 10 Years) Firms

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1973 1978 1983 1988 1993 1998

Year

E/A

10%

25%

50%

75%90%

Figure 6 - Percentiles of Profitability for All Listed Firms

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1973 1978 1983 1988 1993 1998

Year

E/A

10%

25%

50%

75%

90%

Figure 7a - Percentiles of Growth for All Listed Firms

-0.3

0.2

0.7

1.2

1.7

2.2

1973 1978 1983 1988 1993 1998

Year

dA/A

10%

25%

50%

75%

90%

Figure 7b - Percentiles of Growth for All Seasoned (> 5 Years) Firms

-0.3

0.2

0.7

1.2

1.7

2.2

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%50%

75%

90%

Figure 7c - Percentiles of Growth for All New Lists of the Last Five Years

-1

0

1

2

3

4

5

6

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%50%

75%

90%

Figure 8a - Percentiles of Growth for IPOs of the Last Five Years

-1

0

1

2

3

4

5

6

1973 1978 1983 1988 1993 1998

Year

dA/A

10%

25%50%

75%

90%

Figure 8b - Percentiles of Growth for Non-IPO New Lists of the Last Five Years

-1

0

1

2

3

4

5

6

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%50%

75%

90%

Figure 8c - Percentiles of Growth for Big New Lists of the Last Five Years

-1

0

1

2

3

4

5

6

7

8

9

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%50%

75%

90%

Figure 9a - Percentiles of Year 1 (Listing Year) Growth for IPOs

-2

0

2

4

6

8

10

12

14

16

18

20

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%

50%

75%

90%

Figure 9b - Percentiles of Year 1 (Listing Year) Growth for Non-IPO New Lists

-2

0

2

4

6

8

10

12

14

16

18

20

1973 1978 1983 1988 1993 1998

Year

dA/A

10%25%

50%

75%

90%

Figure 10a - Percent of New Lists and Seasoned Firms Trading Ten Years Later

20

30

40

50

60

70

80

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

Year

Perc

ent Seasoned

New Lists

Figure 10b - Percent of IPOs and Non-IPO New Lists Trading Ten Years Later

20

30

40

50

60

70

80

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

Year

Perc

ent

IPOs

Non-IPOs

Figure 11a - Percent of New Lists and Seasoned Firms Dropped Within Ten Years

0

10

20

30

40

50

60

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

Year

Perc

ent

New Lists

Seasoned

Figure 11b - Percent of IPOs and Non-IPO New Lists Dropped Within Five and Ten Years

0

10

20

30

40

50

60

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

Year

Perc

ent

Non-IPOs - 10 Years

IPOs - 10 Years