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BENCHMARK-SENSITIVITY OF IPO LONG-RUN PERFORMANCE ...

BENCHMARK-SENSITIVITY OF IPO LONG-RUN PERFORMANCE ...

BENCHMARK-SENSITIVITY OF IPO LONG-RUN PERFORMANCE

Schmalenbach Business Review ◆ Vol. 52 ◆ October 2000 ◆ pp. 374 – 405 Annemarie Sapusek* BENCHMARK-SENSITIVITY OF IPO LONG-RUN PERFORMANCE: AN EMPIRICAL STUDY FOR GERMANY ABSTRACT This paper analyzes the long-run performance of German IPOs of the years 1983 – 1993 compared with various benchmark-indexes and matching firms – and for different subperiods with and without the inclusion of the underpricing effect. We briefly discuss theoretical positions, which predict a neutral aftermarket performance of equity issues or an under/overperformance. Depending on the benchmark used for comparison and the IPO cohort considered, we find neutral, over-, or underperformance of the IPOs. We use Dimson/Marsh buy-and-hold abnormal returns for the long-run performance measurement and present several hypotheses to explain the underperformance. 1 INTRODUCTION Although the market for initial public offerings (IPOs) in Germany was not as big as the new issue market in the U.S. or the UK until the mid-eighties, since 1984 Germany has seen a significant increase of IPO activity. Then, after years of no, or only a very small number of, issues (see Figure 1), 23 companies went public. Within the last three years, the number of IPOs has grown tremendously, up to 180 issues in 1999. In contrast, only 110 companies went public between 1949 and 1982. Due to the booming IPO market of the last 17 years (555 issues), Germany now has a total of 678 IPOs since the end of World War II. Nevertheless, the number of IPOs in Germany is still significantly lower than in the Anglo-American countries, where, especially in the U.S., there are often more than 1,000 firms going public every year. Figure 1 presents an overview of the IPO development in Germany since the end of the 1940s. * Mag. et Dr. rer. soc. oec. Annemarie Sapusek, Wissenschaftliche Assistentin, corresponding address: Martin-Luther-University Halle-Wittenberg, Department of Banking and Finance, Universitätsplatz 8/9, D-06099 Halle a.d. Saale, email: sapusek@wiwi.uni-halle.de. This paper has benefited from the comments of two anonymous referees, whose contributions I gratefully acknowledge. An earlier version of this paper was presented at the 1997 Annual Conference of the European Financial Management Association in Istanbul and at the 1 st Meeting of the Swiss Society for Financial Market Research in St Gallen. I wish to thank discussants and conference participants for helpful suggestions. 374 sbr 52 (4/2000)

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