Long-run Performance Of IPOs Research Articles

Initial and Long-Run Performance of Mining IPOs in Australia

This paper examines the initial and long-run performance of 130 Australian mining IPOs issued from 1979 to 1990. The results show an average underpricing of 107.18%, significantly higher than that previously documented for industrial firms. The time lapse between prospectus registration and listing, and the state of the market when the IPO is issued are the main explanatory variables for the observed underpricing. Contrary to the existing evidence, mining IPOs in Australia, on average, do not appear to significantly underperform the market in the long-run. The results show that delay in listing is significantly related to the long-run performance, with some evidence of a curvilinear relationship between underpricing and the one-year and two-year share returns.

Initial and Long-Run Performance of Mining IPOs in Australia

This paper examines the initial and long-run performance of 130 Australian mining IPOs issued from 1979 to 1990. The results show an average underpricing of 107.18%, significantly higher than that previously documented for industrial firms. The time lapse between prospectus registration and listing, and the state of the market when the IPO is issued are the main explanatory variables for the observed underpricing. Contrary to the existing evidence, mining IPOs in Australia, on average, do not appear to significantly underperform the market in the long-run. The results show that delay in listing is significantly related to the long-run performance, with some evidence of a curvilinear relationship between underpricing and the one-year and two-year share returns.

Insider Retention and Long-Run Performance in German and UK IPOs

This paper is about ownership retention in German and UK IPOs, the determinants of ownership retention and its impact on IPO long-term performance. The first part of the paper studies ownership retention by pre-IPO shareholders over a period of six years following the flotation. Second, ownership retention six years after the flotation is linked to four factors, total risk, growth rate of assets, involvement of the founder, and the existence of non-voting shares. Third, the bad long-run performance of IPOs is correlated with ownership retention. The overall evidence suggests that the bad long-term performance of IPOs, compared to the stock market as a whole, cannot be explained by agency conflicts caused by the reduction in ownership by the original shareholders.

Underpricing, subsequent equity offerings, and the long-run performance of Japanese IPOs

Using data on IPOs that are issued in Japan during January 1975–March 1989, we examine the deliberate underpricing and overreaction hypotheses to explain high initial returns at offering dates. Specifically, we analyze the cross-sectional pattern of the short- and long-run performance of IPOs. The obtained results indicate that the deliberate underpricing theories which we examine are unable to explain the high initial returns on the Japanese IPOs. Furthermore, for the average of the IPOs, the empirical results are not consistent with the overreaction hypothesis. However, there is evidence consistent with the hypothesis that for a certain minority group of IPOs, the high initial returns occur due to overreactions by investors. We interpret the overall results as indicating that the high initial returns on the Japanese IPOs can be attributed to a mixture of both underpricing and investor overreaction. We conjecture that the binding regulations in Japan led to underpricing.

Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan

The presence of venture capital in the ownership structure of U.S. firms going public has been associated with both improved long-term performance and lower underpricing at the time of the IPOs. In Japan, we find the long-run performance of venture capital-backed IPOs to be no better than that of other IPOs, with the exception of firms backed by foreign owned or independent venture capitalists. Many of the major venture capital firms in Japan are subsidiaries of securities firms that may face a conflict of interest when underwriting the venture capital-backed issue. When venture capital holdings are broken down by their institutional affiliation, we find that firms with venture backing from securities company subsidiaries do not perform significantly worse over a three-year time horizon than other IPOs. On the other hand, we find that IPOs in which the lead venture capitalist is also the lead underwriter have higher initial returns than other venture capital-backed IPOs. The latter result suggests that conflicts of interest influence the initial pricing, but not the long-term performance, of initial public offerings in Japan.

Pricing initial public offerings: Further evidence from Germany

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.