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Working Paper: An Empirical Investigation of Initial Public Offering (IPO) Performance
Zachary A. Smith, Ph.D.

An Empirical Analysis of Initial Public Offering (IPO) Performance

Zachary A. Smith, Ph.D.
507 Winchester Road
Jacksonville, NC 28546
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Zachary A. Smith, Ph.D.

Abstract: For decades, researchers have disagreed about the magnitude and predictability of abnormal securities’ price performance generated by initial public offerings (IPOs). The purpose of this study was to identify the best specified and most powerful method of abnormal performance detection and to apply this method to examine the price performance of IPOs.
Matched by size, industry, and book-to-market ratios this study explored which of the resulting seven portfolios and matched-firm methods of abnormal performance detection produced the best specified and most powerful test statistics. Additionally, this study analyzes IPO price performance to determine if IPOs generate abnormal performance. This analysis was conducted using the event study approach for the research design along with the buy and hold abnormal return (BHAR) method of calculating abnormal returns. The findings were that (a) all of the matched-firm methods of abnormal performance detection were well specified and powerful
(matching by industry affiliation generated the best power and specification results) and (b) that the IPOs generated statistically significant abnormal price performances occurring in: (a) shortterm analyses, (b) longer-term analyses, and (c) analyses of the lockup and quiet periods.
Key words: Event study, IPO performance, Quiet period, Lockup period, Specification and power analysis, Short- and long-term abnormal performance, Initial public offering, Price performance Working Paper: An Empirical Investigation of Initial Public Offering (IPO)

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