Abstract

The long-run underperformance of IPOs (Initial Public Offerings) is one of the three “New Issues Puzzles” It indicates that if investors buy IPOs and hold for more than three years they will get negative abnormal returns It is necessary to examine the long-run performance of IPOs in China because it benefits how to enhance the efficiency of IPOs market and provides insight of emerging market This paper empirically examines the performance for three years after listing of 76 Shanghai Stock Exchange IPOs form 2002 to 2007, the matched company as the benchmark, the matched company comes from the same industry and similar circulated stock value with listed companies. First it computes the long-run excess returns of the IPOs with types of models. Then it examines whether the underperformance has statistical significance or not. After that, it analyzes the relationship between the variables and long-run performance of IPOs.

Research documents that the IPOs significantly underperformed the matched companies. The cumulative abnormal returns over the three years listing are -0.18446. The buy and hold abnormal returns over three years after listing are-0.01284. At last, using the cross-sectional analysis to analyze the factors that affect the long-run performance of IPOs, the regression result shows that EPS is the basic reason; the intrinsic value, issue characteristics and the investors’ sentiment (overoptimistic) are the main reason for long-run performance of IPOs.

This paper analyzes the reason of this phenomenon, then from the reason puts forward relevant suggestions: firstly, improving the information disclosure; secondly, evaluating the rational investors; thirdly, strengthening market supervision.

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