Title : New Evidence on the Underperformance of Initial Public Offerings: Analyses of Earnings Announcements Returns
This study examines price movements around earnings announcements for newly listed firms to provide additional insight into the long-run performance of initial public offerings (IPOs). According to Miller (1977), because IPOs are difficult to sell short, and have a high level of differences of opinion compared to non-IPO firms, IPOs are overvalued initially. As the short-sales constraints become less binding, and the uncertainty about firms’ value decreases over time, IPO firms tend to converge to their true values in the long run. Using a sample of 84,801 earnings announcements made by 6,818 IPOs listed on the U.S. markets from 1974 to 2008, the industry-adjusted cumulative abnormal returns (CARs) around earnings announcements are calculated. Consistent with Miller’s predictions, this study finds that returns around earnings announcements are mostly negative and become less negative as time goes by. This result supports that IPOs experience a convergence to their true value in the long run. In addition, by analyzing the hedge returns of portfolios formed using six proxies for uncertainty, this study shows that firms with high divergence of opinions earn significantly lower returns around earnings announcement.
Keywords: IPOs; Divergence of opinions; Earnings announcements
학회소식
학회소식
[2010년 제 4차] New Evidence on the Underperformance of Initial Pub
작성자 : 관리자
조회수 : 791
게시일 :
2010-12-09