Abstract
The long-run underperformance of IPOs (Initial Public Offerings) is one of the three “New Issues Puzzles” It indicates that if investors buy IPOs and hold for more than three years they will get negative abnormal returns It is necessary to examine the long-run performance of IPOs in China because it benefits how to enhance the efficiency of IPOs market and provides insight of emerging market This paper empirically examines the performance for three years after listing of 76 Shanghai Stock Exchange IPOs form 2002 to 2007, the matched company as the benchmark, the matched company comes from the same industry and similar circulated stock value with listed companies. First it computes the long-run excess returns of the IPOs with types of models. Then it examines whether the underperformance has statistical significance or not. After that, it analyzes the relationship between the variables and long-run performance of IPOs.
 
 Research documents that the IPOs significantly underperformed the matched companies. The cumulative abnormal returns over the three years listing are -0.18446. The buy and hold abnormal returns over three years after listing are-0.01284. At last, using the cross-sectional analysis to analyze the factors that affect the long-run performance of IPOs, the regression result shows that EPS is the basic reason; the intrinsic value, issue characteristics and the investors’ sentiment (overoptimistic) are the main reason for long-run performance of IPOs.
 
 This paper analyzes the reason of this phenomenon, then from the reason puts forward relevant suggestions: firstly, improving the information disclosure; secondly, evaluating the rational investors; thirdly, strengthening market supervision.
Highlights
The long-run underperformance of Itial Public Offering (IPO) one of the three “New Issues Puzzles’ an important issue focused by western academics in recent years’ Western scholars have put forward various theories on this topic including the divergence of opinion hypothesis the impresario hypothesis the windows of opportunity hypothesis and over packaging hypothesis
IPOs and matched companies have the similar market value, the difference control below 20%, most primary reason is from the same industry, it is a seldom analysis approach, those firms are from Shanghai Stock Exchange, and the market value would adjust at the end of each year, and choosing the matched the most likely market value
Schultz utilize the distribution of income, distribution volume and the market rate to prove the long-run underperformance over 25% after IPOs issued after 5 years later, the market return is from the year 1973- 1997, the result is not surprising, even in efficient market is common
Summary
The long-run underperformance of IPOs one of the three “New Issues Puzzles’ an important issue focused by western academics in recent years’ Western scholars have put forward various theories on this topic including the divergence of opinion hypothesis the impresario hypothesis the windows of opportunity hypothesis and over packaging hypothesis. The phenomenon of long-run underperformance challenges the efficient market theory, in particular the validity of information, because the investors are rational, the stock price is random walk in the effective market. Vol 14, No 11; 2019 research the IPOs’ long-run underperformance contribute to test the degree of effectiveness, which is the prime importance to study the long-run performance of IPOs. Previous research by Datta Gruskin and Iskandar-Datta (2015) examined the post-IPO stock price performance by differentiating between IPOs and three types of RLBOs (i.e. public-to-private (or re-IPOs), division-to-private, and private-to-private deals). We research the IPOs’ long-run underperformance contribute to test the degree of effectiveness, which is the prime importance to study the long-run performance of IPOs. Secondly, from the perspective of investors, long-run underperformance means that the stock is not suitable for hold a long-term of IPOs, to examine whether the existence of IPOs in China can provide information to make the right investment strategy. There is still no good theory to solve these problems, so we should continue to study necessarily
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