Explaining the Short- and Long-Term IPO Anomalies in the Us by R&D

47 Pages Posted: 1 Sep 2005

See all articles by Re-Jin Guo

Re-Jin Guo

University of Illinois at Chicago - Department of Finance

Baruch Lev

New York University - Stern School of Business

Charles Shi

NUS Business School, National University of Singapore

Multiple version iconThere are 3 versions of this paper

Date Written: August 2005

Abstract

Financial scholars who research the initial underpricing and long-term underperformance of IPOs generally attribute these phenomena to information asymmetry and investors' misevaluations. Here, we identify, on a sample of 2,696 US IPOs issued during 1980-1995, a widespread source of information asymmetry and valuation uncertainty - the R&D activities of issuers - and document that these activities significantly affect both the initial underpricing of IPOs (R&D is positively correlated with underpricing) and their long-term performance (R&D is positively related to long-term performance). Given the pervasiveness and constant growth of firms' R&D activities in modern economies, our identification of R&D as a major factor affecting IPO's performance contributes to the understanding of this important economic and capital market phenomenon.

Keywords: R&D, IPO's performance, information asymmetry, investor optimism

JEL Classification: G12, G14, M41, M44

Suggested Citation

Guo, Re-Jin J. and Lev, Baruch Itamar and Shi, Charles, Explaining the Short- and Long-Term IPO Anomalies in the Us by R&D (August 2005). Available at SSRN: https://ssrn.com/abstract=795005 or http://dx.doi.org/10.2139/ssrn.795005

Re-Jin J. Guo

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
312-413-3718 (Phone)

Baruch Itamar Lev

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Charles Shi (Contact Author)

NUS Business School, National University of Singapore ( email )

15 Kent Ridge Dr
Singapore, 119245
Singapore
65-65161678 (Phone)

HOME PAGE: http://bschool.nus.edu/Accounting/FacultyStaff/Facultymembers.aspx

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