Pricing initial public offerings: Further evidence from Germany

Abstract

In a recent article in this Review, Wasserfallen and Wittleder (Pricing initial public offerings: Evidence from Germany, European Economic Review 38, 1505–1517, 1994) [WW] provide evidence of the well-known underpricing phenomenon for 92 German IPOs coming to market in 1961–1987. Using a larger sample of 189 firms from 1970–1993, this paper (i) reassesses the evidence on underpricing in Germany, after choosing a different risk proxy to avoid potential endogeneity problems, and (ii) provides evidence of long-run IPO performance. A number of new results emerge. Stock market returns, the macroeconomic climate, insider retention rates, and inverse offer size all affect underpricing positively. Over longer horizons German IPOs are poor investments, losing more than twelve percent over their first three years of trading relative to the market (exclusive of the initial underpricing return). Negative performance is heavily concentrated after the end of WW's sampling period, in the post-1987 cohort.