Working Paper: An Empirical Investigation of Initial Public Offering (IPO) Performance
Zachary A. Smith, Ph.D.
An Empirical Analysis of Initial Public Offering (IPO) Performance
Zachary A. Smith, Ph.D.
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(757) 553-1692 zacharyasmith@gmail.com Working Paper: An Empirical Investigation of Initial Public Offering (IPO) Performance
Zachary A. Smith, Ph.D.
Abstract: For decades, researchers have disagreed about the magnitude and predictability of abnormal securities’ price performance generated by initial public offerings (IPOs). The purpose of this study was to identify the best specified and most powerful method of abnormal performance detection and to apply this method to examine
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During the initial trading day, IPOs in this sample generated abnormally positive performance of 3.44%.
Third, this analysis illustrates that IPOs experience substantial long-term underperformance three years after their initial unseasoned equity offering, when compared against firms matched based upon industry affiliation. Finally, IPOs experience significant abnormally positive performance in the five-day period surrounding the expiration of the quiet period of 1.64% and a significantly negative abnormal performance of 1.00% around the expiration of the lockup period.
This paper continues as follows. Section I introduces the theory, empirical work, and conceptual framework of the hypotheses related to IPO performance. Section II presents the proposed methodology. Section III presents the results of the current analysis. Section IV provides a summary of the work and concludes.
Literary Review
Studies of IPO performance have concentrated in two general veins of inquiry: (a) why do IPOs generate abnormal performance and (b) to what extent is this performance abnormal.
This project focus on addressing the second of the two preceding questions, namely how significant this abnormal IPO performance. Many researchers have attempted to answer this question (e.g. Affleck-Graves, Hedge, & Miller, 1996; Ibbotson, 1975; Loughran & Ritter, 2004;
Reilly & Hatfield, 1969), but
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