IPO Pricing in Germany and Switzerland in the New Millennium: Tests on Underpricing and Long-Term Performance

Abstract

We provide an updated analysis of initial public offerings (IPOs) by Swiss and German companies after the turn of the millennium up to 2020. We compare the characteristics of initial pricing to those observed in prior studies, test conventional hypotheses about underpricing cross-sectionally, and analyze the long-run performance of IPO firms. Our sample included 72 IPOs in Switzerland and 307 IPOs in Germany. We found an average (median) underpricing of 13.27% (7.19%) for Swiss IPOs and an average (median) of 21.50% (3.7%) for German IPOs; the averages dropped to 6.45% and 5.82%, respectively, after excluding the hot-issue market in 2000. Among the cross-sectional explanations, interesting effects can be observed with respect to the bookbuilding width and transparency standard of the listed market segment, as well as the reputation of the underwriter and the value of the greenshoe option. We documented strong post-issue underperformance for holding periods up to 120 months, which were, however, only present in the Swiss sample for median, not mean, returns.