Signalling and the Long-Run Performance of Spanish Initial Public Offerings (Ipos)

Abstract

An analysis of the long-run performance ofSpanish initial public offerings (IPOs) is presented in this research, withfocus on the influence of underpricing as a signal for post-listing performanceand firm quality. Fifty-two Spanish firms that went public between 1987 and1997 were considered.The data were obtained from the Madrid StockExchange and the Spanish Securities and Exchange Commission. The average underpricing of these IPOs was 14%, which represents the returnan investor would have received if the stock was bought during the offering andsold at the end of the first day of trading. Like the findings in internationalliterature, this analysis shows the negative long-run abnormal stockreturns. Additionally, the results show that Spanish IPOs follow the strategy ofselling only part of the shares initially and selling the remainder at a laterdate and higher price. The initial underpricing is shown to be positivelyassociated with the 5-year performance. (SRD)

Keywords: Madrid Stock Exchange, Spanish Securities and Exchange Commission, Rates of return, Firm performance, Stock offerings, Initial public offerings (IPO), Underpricing