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Explaining the Short- and Long-Term IPO Anomalies in the US by R&D

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  • Re-Jin Guo
  • Baruch Lev
  • Charles Shi
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    Abstract

    Financial scholars who research the initial underpricing and long-term underperformance of IPOs generally attribute these phenomena to information asymmetry and investors' misevaluations. Here, we identify, on a sample of 2,696 US IPOs issued during 1980-1995, a widespread source of information asymmetry and valuation uncertainty-the R&D activities of issuers-and document that these activities significantly affect both the initial underpricing of IPOs (R&D is positively correlated with underpricing) and their long-term performance (R&D is positively related to long-term performance). Given the pervasiveness and constant growth of firms' R&D activities in modern economies, our identification of R&D as a major factor affecting IPO's performance contributes to the understanding of this important economic and capital market phenomenon. Copyright Blackwell Publishers Ltd, 2006.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 33 (2006-04)
    Issue (Month): 3-4 ()
    Pages: 550-579

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    Handle: RePEc:bla:jbfnac:v:33:y:2006-04:i:3-4:p:550-579

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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    Cited by:
    1. Alan Hughes & Jaeho Lee, 2006. "What's in a name and when does it matter? The hot and cold market impacts on underpricing of certification, reputation and conflicts of interest in venture capital backed Korean IPOs," ESRC Centre for Business Research - Working Papers wp336, ESRC Centre for Business Research.
    2. H. T. Tran & E. Santarelli, 2013. "Revisiting Italian Emigration Before the Great War: A Test of the Standard Economic Model," Working Papers wp909, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Cho, Jaemin & Lee, Jaeho, 2013. "The venture capital certification role in R&D: Evidence from IPO underpricing in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 83-108.

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