Explaining the Short- and Long-Term IPO Anomalies in the US by R&D
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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Volume (Year): 33 (2006-04)
Issue (Month): 3-4 ()
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