Sink or Swim? How governance provided a winning formula for 2021 IPOs
Executive summary Market cap growth Our analysis of the 2021 IPO cohort revealed a strong positive correlation between longer CEO tenure and market cap growth, underscoring the importance of experienced leadership in driving performance. “Say on pay” approval At their latest AGM, the group of 2021 IPO companies we analyzed had the highest approval rate […]
Zsombor Péli is a Research Manager, Rachit Gupta is the Head of Global Data & Research, and Yuxuan Zhao is a Data Analyst at Diligent Market Intelligence. This post is based on their Diligent memorandum.
Executive summary
Market cap growth
Our analysis of the 2021 IPO cohort revealed a strong positive correlation between longer CEO tenure and market cap growth, underscoring the importance of experienced leadership in driving performance.
“Say on pay” approval
At their latest AGM, the group of 2021 IPO companies we analyzed had the highest approval rate for “say on pay” proposals, with 93.93% of votes in favor, compared to lower figures for the Russell 3000 and S&P 500. However, proxy advisor recommendations were lower, around 65%, due to non-standard compensation arrangements for these newly public companies.
Financial performance
A sample of our selected group of companies demonstrated improving financial metrics post-IPO. Their average earnings per share (EPS) improved from -$1.96 in 2021 to -$0.33 in 2023, signalling a gradual move toward profitability. Additionally, these companies showed relatively stable earnings compared to broader market indices, although market cap growth was generally lower than the Russell 3000.
Return on capital
Elevated board independence, controlled company status, and higher realized CEO pay among the 2021 IPO companies in our study positively influenced the average return on capital over the last three years, highlighting the value of balanced governance structures in optimizing capital allocation.
Key facts about the cohort
Record IPO activity in 2021: The U.S. market witnessed a record-breaking year for IPOs in 2021, with 1,026 companies raising over $100 billion. This surge was driven by low interest rates, ample liquidity and growing retail investor participation. While nontraditional IPOs, mostly special purpose acquisition companies (SPACs) comprised almost 70% of the new listings, the rate of traditional IPOs also increased sharply. Subsequent years saw a decrease in listings due to the 2021 boom and tightening financial conditions. The analysis in this paper focuses on traditional IPOs to identify trends that may be more relevant in the future.
