The aftermarket performance of initial public offerings in Canada

Abstract

This paper attempts to fulfil the great need for the Canadian evidence on long-run performance of initial public offerings (IPOs). We examine the performance for up to 5 years after listing of over 445 Canadian IPOs from 1991 to 1998. The sample underperforms in the long run. However, the observed pattern is not always statistically significant, and depends on the methodology used and on the weighting schemes. Several behavioral explanations for the poor subsequent performance of Canadian issuing firms are explored. The divergence of opinions, hypothesis does not apply in explaining the aftermarket performance of Canadian IPOs, our evidence is however consistent with the hot issue market story. We also find some evidence of the fads hypothesis to explain the long-run behavior of large IPOs.