Re-Assessing the Long-Term Underperformance of UK Initial Public Offerings

Posted: 9 Jun 2000

See all articles by Susanne Espenlaub

Susanne Espenlaub

University of Manchester - Division of Accounting and Finance

Alan Gregory

University of Exeter - Xfi Centre; University of Exeter Business School

Ian Tonks

University of Bristol

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 approach, there are substantial negative abnormal returns to an IPO after the first three years irrespective of the benchmark used. However, over the five 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.

Keywords: Initial public offerings, equity issues, long-run returns, market efficiency

JEL Classification: G14

Suggested Citation

Espenlaub, Susanne K. and Gregory, Alan and Tonks, Ian, Re-Assessing the Long-Term Underperformance of UK Initial Public Offerings. European Financial Management, Vol. 6, No. 3, September 2000, Available at SSRN: https://ssrn.com/abstract=228796

Susanne K. Espenlaub

University of Manchester - Division of Accounting and Finance ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom
44 161 275 4026 (Phone)

Alan Gregory

University of Exeter - Xfi Centre ( email )

University of Exeter
Xfi Building, Rennes Dr.
Exeter, EX4 3BZ
United Kingdom

University of Exeter Business School ( email )

Streatham Court
Xfi Building Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Ian Tonks (Contact Author)

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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