The underpricing of initial public offerings (IPOs) that has been widely documented appears to be a short-run phenomenon. Issuing firms during 1975-84 substantially underperformed a sample of matching firms from the closing price on the first day of public trading to their three-year anniversaries. There is substantial variation in the underperformance year-to-year and across industries, with companies that went public in high-volume years faring the worst. The patterns are consistent with an IPO market in which (1) investors are periodically overoptimistic about the earnings potential of young growth companies, and (2) firms take advantage of these "windows of opportunity." NUMEROUS STUDIES HAVE DOCUMENTED two anomalies in the pricing of initial public offerings (IPOs) of common stock: (1) the (short-run) underpricing phenomenon, and (2) the "hot issue" market phenomenon. Measured from the offering price to the market price at the end of the first day of trading, IPOs produce an average initial return that has been estimated at 16.4%.1 Furthermore, the extent of this underpricing is highly cyclical, with some periods, lasting many months at a time, in which the average initial return is much higher.2 In this paper, I document a third anomaly: in the long-run, initial public offerings appear to be overpriced. Using a sample of 1,526 IPOs that went public in the U.S. in the 1975-84 period, I find that in the 3 years after going public these firms significantly underperformed a set of comparable firms matched by size and industry.

https://www.jstor.org/stable/pdfplus/2328687.pdf

The Long‐Run Performance of initial Public Offerings

This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much privatization has improved the performance of former SOEs in non-transition and transition countries, how investors in privatizations have fared, and the impact of privatization on the development of capital markets and corporate governance. In most settings privatization "works" in that the firms become more efficient, more profitable, and financially healthier, and reward investors.

/pdf/from-state-to-market-a-survey-of-empirical-studies-on-54vi9aent6.pdf

From State to Market: A Survey of Empirical Studies on Privatization

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

/pdf/trading-is-hazardous-to-your-wealth-the-common-stock-atbrybryw8.pdf

Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors

Earnings Management and Investor Protection: An International Comparison

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high-beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

/pdf/trading-is-hazardous-to-your-wealth-the-common-stock-15m84rqa5b.pdf

Trading is Hazardous to Your Wealth : The Common Stock Investment Performance of Individual Investors

http://www.nccr-finrisk.uzh.ch/media/pdf/M-Ferreira_27-11.pdf

Does governance travel around the world? Evidence from institutional investors.

This study examines the kinds of events that cause large shifts in the volatility of emerging stock markets. We first determine when large changes in the volatility of emerging stock market returns occur and then examine global and local events (social, political, and economic) during the periods of increased volatility. An iterated cumulative sums of squares (ICSS) algorithm is used to identify the points of shocks/sudden changes in the variance of returns in each market and how long the shift lasts. Both increases and decreases in the variance are identified. We then identify events around the time period when shifts in volatility occur. Most events tend to be local and include the Mexican peso crisis, periods of hyperinflation in Latin America, the Marcos-Aquino conflict in the Philippines, and the stock market scandal in India. The October 1987 crash is the only global event during the period 1985–1995 that caused a significant jump in the volatility of several emerging stock markets.

Volatility in Emerging Stock Markets

Do remittances promote financial development

We construct a firm-level governance index that increases with minority shareholder protection. Compared to U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.

Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences

m Early research related to initial public offerings (IPOs) documented the tendency of IPOs to provide abnormal returns to investors who purchased them at the initial offering (Reilly and Hatfield [27] and Stoll and Curley [33]). Refinements and extensions followed, including efforts to explain the variation in abnormal returns across firms and underwriters (Johnson and Miller [16] and Miller and Reilly [22]). Information asymmetry, legal liability, and signaling theories have also been incorporated into IPO related research (Allen and Faulhaber [1], Baron [4], Rock [30], and Tinic [35]). In general terms, there are two possible explanations for these abnormal returns. The most widely held view is that IPOs are underpriced at the initial offering. A second possibility, however, is that IPOs are not priced at intrinsic values in early aftermarket trading. Financial researchers have traditionally adhered to the first explanation (underpricing) rather than the second (aftermarket inefficiencies). For example, Tinic [35] considers the possibility that speculative bubbles exist in the IPO market but writes that " ... there is no empirical evidence that supports such a pattern ... " [p. 792]. However, there has been little comprehensive empirical analysis of the aftermarket price behavior of IPOs. The overwhelming majority of IPO related research has focused on price behavior in the days or weeks following the offering. Aftermarket efficiency has been supported because there are typically no abnormal returns for investors purchasing in the aftermarket. However, the short time periods studied do not allow for more comprehensive examination of price behavior. This research was partially supported by research grants from the U.S. Small Business Administration and Georgetown University. The extensive research assistance of Mr. Kamran Bakr is gratefully acknowledged. Professors Dennis Logue, Lemma Senbet, Richard Sweeney, Donald Tuttle, David Walker, and participants at the SEC workshop provided helpful comments. We have also benefitted from the critiques of four anonymous reviewers and the editor. Finally, we are grateful to the many investment bankers who answered our questions for this and related research.

Reena Aggarwal

Papers

Does governance travel around the world? Evidence from institutional investors.

Volatility in Emerging Stock Markets

Do remittances promote financial development

Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences

Fads in the initial public offering market