Impact of information on winners' curse and long run performance of initial public offerings

Abstract

AbstractThe current research focuses on the short run and long run performance of initial public offerings (IPOs) during 2005–2012. The study evaluates the impact of informational variables (both internal and external) on the first day returns. The performances have been measured through market adjusted excess return (MAER) and buy and hold abnormal returns (BHAR). A structural equation model (SEM) has been designed to identify how information affects the short run performance of IPOs. The results reveal that new issues are underpriced thereby proving winners' curse hypothesis. The study highlights that the informational variables have a significant effect on first day returns. The results also indicate that the average long run returns are negative. The results of this study will assist global investors in decision making and will facilitate active participation of these investors in IPOs in emerging markets like India.