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The Long-Run Negative Drift Of Post-Listing Stock Returns

Posted: 11 Apr 1995  

Bala G. Dharan

Harvard Law School; Berkeley Research Group LLC; Rice University

David L. Ikenberry

Leeds School of Business, University of Colorado Boulder; University of Illinois at Urbana-Champaign - Department of Finance

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Abstract

After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Many of these firms have been public only a short period of time. Moreover, once listed, several firms make seasoned equity offerings. However, the negative post-listing drift is not a manifestation of the new-equity issuance puzzle. Instead, the negative post-listing drift appears to be the result of managers opportunistically choosing when to apply for listing. The barriers posed by initial listing requirements appear to cause some managers to apply for listing prior to a decline in performance. These requirements are more binding in smaller, less widely held stocks, the same stocks for which the drift is most severe. For large, more widely held firms, the post-listing drift is absent. This finding of opportunistic behavior is strikingly similar to the market timing arguments that have been offered to explain the poor performance observed following equity offerings.

JEL Classification: G13

Suggested Citation

Dharan, Bala G. and Ikenberry, David L., The Long-Run Negative Drift Of Post-Listing Stock Returns. Available at SSRN: https://ssrn.com/abstract=6082

Bala G. Dharan

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Berkeley Research Group LLC ( email )

Boston, MA
United States

Rice University ( email )

6100 South Main Street
Houston, TX 77005
United States

David L. Ikenberry (Contact Author)

Leeds School of Business, University of Colorado Boulder ( email )

Boulder, CO 80309-0419
United States
303-492-1809 (Phone)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
340 Wohlers Hall
Champaign, IL 61820
United States
217-333-6396 (Phone)
217-333-4101 (Fax)

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