IPO Long-Run Returns: A New Approach

The long-run underperformance of initial public offerings (IPOs) is heavily documented; however, researchers have been unable to consistently determine which IPO characteristics affect the level of underperformance. Our main contribution is to examine this relation using a unique, alternative approach that concentrates on pairs of IPOs issued on the same day, thereby avoiding many of the biases (e.g., overlapping time periods) embedded in previous studies. Over the period 1986 to 2000 we find that issues with lower initial returns, higher quality underwriters, and/or high technology status tend to have higher long-run returns. Note: Link is to the article on the publisher’s web site, which is available in full text for a fee.