Long-Run Stock Performance of German Initial Public Offerings: Survey and Update

Abstract

Previous estimates of the mean 3-year buy-and hold abnormal returns of German IPO stocks range from -52.20% to 1.66%. It is difficult to justify this significant variation in abnormal returns, given the almost identical calculation procedures and the large overlap in sample periods. We argue that the results of previous studies are biased because (1) the segmentation of the German equity market is not controlled for, (2) improper market indexes are used as benchmarks, and (3) the test statistics are not robust. In this paper, we investigate the performance of IPOs that took place in the top market segment, the Amtlicher Markt. We find no statistically significant underperformance of IPO stocks if the benchmark contains stocks listed only in this market segment, and if a robust test statistic is used. Our results imply that some of the previous findings of underperformance stem from a failure to address the aforementioned biases.

Keywords: initial public offerings, long-run performance, German equity market

JEL Classification: G32, G14