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Re‐assessing the long‐term underperformance of UK Initial Public Offerings

Author

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  • Susanne Espenlaub
  • Alan Gregory
  • Ian Tonks

Abstract

Previous work has identified that IPOs underperform a market index, and the purpose of this paper is to examine the robustness of this finding. We re‐examine the evidence on the long‐term returns of IPOs in the UK using a new data set of firms over the period 1985–92, in which we compare abnormal performance based on a number of alternative methods including a calendar‐time approach. We find that, using an event‐time framework, there are substantial negative abnormal returns to an IPO after the first 3 years irrespective of the benchmark used. However, over the 5 years after an IPO, abnormal returns exhibit less dramatic underperformance, and the conclusion on negative abnormal returns depends on the benchmark applied. Further if these returns are measured in calendar time, we find that the (statistical) significance of underperformance is even less marked.

Suggested Citation

  • Susanne Espenlaub & Alan Gregory & Ian Tonks, 2000. "Re‐assessing the long‐term underperformance of UK Initial Public Offerings," European Financial Management, European Financial Management Association, vol. 6(3), pages 319-342, September.
    • Handle: RePEc:bla:eufman:v:6:y:2000:i:3:p:319-342
    DOI: 10.1111/1468-036X.00127
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    Citations

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    Cited by:

    1. Kumaran, Sunitha, 2022. "Financial performance index of IPO firms using VIKOR-CRITIC techniques," Finance Research Letters, Elsevier, vol. 47(PA).
    2. Radha Shiwakoti & Robert Hudson & Helen Short, 2005. "A study of the initial returns and the aftermarket performance of initial public offerings of demutualized building societies in the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 403-409.
    3. Nurwahida Yaakub & Mohamed Sherif & Roszaini Haniffa, 2018. "The Post-issue Market Performance of Initial Public Offerings: Empirical Evidence from the Malaysian Stock Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(3_suppl), pages 376-414, December.
    4. Shikha Bhatia & Balwinder Singh, 2012. "Examining the Performance of IPOs," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 37(3), pages 219-251, August.
    5. Lee, Chien-Chiang & Ning, Shaolin & Hsieh, Meng-Fen & Lee, Chi-Chuan, 2020. "The going-public decision and rent-seeking activities: Evidence from Chinese private companies," Economic Systems, Elsevier, vol. 44(1).
    6. Maher Kooli & Jean-François L'Her & Jean-Marc Suret, 2003. "Do IPOs Underperform in the Long-Run? New Evidence from the Canadian Stock Market," CIRANO Working Papers 2003s-16, CIRANO.
    7. Al Shawawreh Fawaz Khalid, 2023. "Reassessing the Long-Run Abnormal Performance of Jordanian IPOs: An Event Study Approach," Foundations of Management, Sciendo, vol. 15(1), pages 141-160, January.
    8. Smadar Siev & Mahmoud Qadan, 2022. "Call Me When You Grow Up: Firms’ Age, Size, and IPO Performance across Sectors," JRFM, MDPI, vol. 15(12), pages 1-22, December.
    9. José Emilio Farinós, 2001. "Rendimientos anormales de las OPV en España," Investigaciones Economicas, Fundación SEPI, vol. 25(2), pages 417-437, May.
    10. Nugroho Sasikirono & Sumiati Sumiati & Nur Khusniyah Indrawati, 2018. "Underpricing and long-term market performance of initial public offerings in Indonesia: A quantile regression approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 152-167, January.

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