Introduction and Motivation

Abstract

There is a long-standing debate in the financial economics literature about long-term abnormal stock returns following firms’ initial public offerings (IPOs). Starting with Ritter (1991), this debate has concentrated on long-term underperformance, i.e., negative abnormal returns. He showed that the average IPO firm has a negative abnormal return over three years after the initial listing. Several researchers (see, e.g., Fama 1998) have voiced methodological and conceptual concerns about this finding, spurring the development of alternative techniques to correct for specific shortcomings. Largely, the more recent articles have not been able to document significantly negative abnormal returns on average.