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July 2, 2007

Things That Tell You To Stop Reading a Finance Paper

At least as important as knowing which finance papers to read is knowing early which papers to stop reading. Here is a dead giveaway on the first page of an otherwise interesting-looking paper.

Using a sample of 160 Internet IPO firms that went public during the period 1996–2000, we estimate Cox Proportional Hazards (CPH) models to analyze the economic significance of factors that influence the post-IPO path-to-profitability.

While I liked the authors' core contrarian argument that technology firms' increasing prevalence among IPO-ing companies is leading to more (not less) profitable companies going public -- tech firms are so risky that they need to put profit markers on table -- the above statement ruins it. You can't extrapolate anything meaningful about tech markets/IPOs from what happened in 1996-2000. Sorry.

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