PLNT
BNK
Aftermarket performance measured by aars and bhrs.
Table 2 shows that the AARs and CAARs are always lower than 1% for the first 36 months after the listing day. The AARs vary between -0.15% and 0.15%. The CAARs for 144 IPOs are 0.54% over 36 months after listing. Furthermore, CAARs are all negative up to the twenty-sixth trading month and subsequently show positive returns. However, the t-statistics are not statistically significant. Moreover, both BHRs and CAARs are negative up to the twelfth trading month, and after that BHRs show positive returns, whereas CAARs show positive returns at the three-year holding period only ( Table 1 ). On a daily basis, there are many negative returns, so CAARs are lower than BHRs. BHRs are negative in the short run, and during the long run IPOs outperform them with positive BHRs. In particular, over three years, the average BHRs are 12.46% for the sample. However, skewness adjusted t-statistics are not statistically significant.
AAR and CAAR | BHR | ||||||||
---|---|---|---|---|---|---|---|---|---|
Trading Month | Firms | AAR (%) | t-statistic (AAR) | CAAR (%) | t-statistic (CAAR) | Period | Firms | BHR (%) | Skewness adj. t-statistic (BHR) |
144 | -0.1521 | -0.2533 | -0.1521 | -0.3643 | 144 | -3.04 | -1.2497 | ||
144 | -0.0796 | -0.1573 | -0.2547 | -0.3334 | 144 | -5.09 | -1.3157 | ||
142 | -0.0473 | -0.0990 | -0.3902 | -0.3540 | 144 | -7.80 | -1.6408 | ||
137 | -0.0153 | -0.0258 | -0.1431 | -0.0896 | 141 | -1.38 | -0.2318 | ||
132 | 0.0230 | 0.0603 | -0.0967 | -0.0419 | 137 | 2.14 | 0.3603 | ||
124 | 0.0013 | 0.0036 | 0.5417 | 0.1856 | 132 | 12.46 | 1.6326 |
This table indicates the average monthly market-adjusted returns (AARs), and cumulative average monthly market-adjusted returns (CAARs) for the 36 trading months of IPOs. Market-adjusted buy-and-hold returns ( BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively.
Table 3 reveals a clear relationship between the initial returns and the aftermarket returns for both the short run and the long run. BHR20–BHR120 are negative in the short run and gradually give positive returns in the long run. Initial returns in the highest quintile ( MAAR/IR ≥ 120) have the worse BHRs. Nevertheless, in the short run, BHR20–BHR120 mostly appear to be negatively related to the IPO under-pricing. In contrast, in the long run, BHR240–BHR720 perform well for the lower initial return quintiles, whereas the higher initial returns quintile always has negative BHRs. When IPOs are initially either overpriced or underpriced, aftermarket IPO returns also underperform in the short run and then perform well in the market in the long run by generating positive BHRs and a similar pattern for both IR and MAAR . The results show that there is a considerable difference when initial IPOs are overpriced and that IPOs are more outperformed/underperformed in the aftermarket performance. However, between BHRs, only BHR720 returns have a significant difference at the 5% level.
Average Aftermarket performance (%) | ||||||
---|---|---|---|---|---|---|
Initial returns (%) | BHR20 | BHR60 | BHR120 | BHR240 | BHR480 | BHR720 |
IR < 0 | -1.21 | -9.42 | -13.10 | -9.48 | 15.52 | 53.07** |
0 ≤ IR < 10 | -8.72 | 1.50 | -3.67 | 6.88 | 11.01 | 19.58 |
10≤ IR < 50 | -2.20 | -7.91 | -9.55 | 4.58 | 1.05 | 3.72 |
50≤ IR < 120 | 3.08 | 0.38 | 3.57 | -1.71 | -11.76 | -7.87 |
IR ≥ 120 | -6.22 | -9.51 | -16.10 | -18.18 | -9.21 | -15.15 |
MAAR < 0 | -5.97 | -5.52 | -8.74 | -3.53 | 9.63 | 21.55 |
0 ≤ MAAR < 10 | 0.62 | 5.24 | 2.40 | 6.18 | 19.30 | 53.40*** |
10≤ MAAR < 50 | -3.53 | -9.14 | -11.74 | 4.42 | 2.14 | 10.62 |
50≤ MAAR < 120 | 0.21 | -5.67 | -5.54 | -9.50 | -14.79 | -8.61 |
MAAR ≥ 120 | -6.04 | -6.98 | -12.69 | -15.39 | -13.89 | -22.99* |
IR overpriced | -1.21 | -9.42 | -13.10 | -9.48 | 15.52 | 53.07 |
IR underpriced | -3.57 | -3.86 | -6.28 | -0.90 | 1.45 | 2.02 |
Negative- positive | 2.36 | -5.56 | -6.82 | -8.58 | 14.07 | 51.05** |
MAAR overpriced | -5.97 | -5.52 | -8.74 | 3.53 | 9.63 | 21.55 |
MAAR underpriced | -2.24 | -4.97 | -7.54 | -0.80 | 0.13 | 10.02 |
Negative- Positive | -3.73 | -0.55 | -1.20 | 4.33 | 9.50 | 11.53 |
This table shows the aftermaret performnce categorized by initial returns. Market-adjusted buy-and-hold returns ( BHR ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. IR refers to the initial returns and MAAR refers to market adjusted abnormal returns. Sample t-statistics to test the difference between categories and the overall average returns are calculated. Two-tails sample t-statistics are used to test the difference in means (assuming unequal variances). ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
The complete breakdown of aftermarket returns considering different measures related to aftermarket performance are shown separately in Table 4 . The IPOs of firms aged 1–4 years have lower BHRs than returns of IPOs in 5–9 years in operation. The results specify that the aftermarket returns remain highest for the firms aged 10–19 years and tend to have positive returns with mature IPOs after one year. Firms aged more than 20 years have the worst performance in the short run, and this continues up to BHR480 . Interestingly, the positive BHRs recorded by firms aged 10–19 years are significant at the 10% level. Furthermore, following Loughran et al. [ 1 ] and Rathnayake et al. [ 15 ] firms aged less than 10 years are classified as young. Young vs. old illustrates a tendency for the age to be negatively related to the BHRs, i.e., younger firms underperform for BHR20–BHR120 and then perform well for BHR240–BHR720 .
Measures | Average Aftermarket performance (%) | |||||
---|---|---|---|---|---|---|
1–4 | 0.92 | 2.77 | -2.76 | -6.42 | -4.06 | 6.82 |
5–9 | -1.45 | -9.94 | -11.03 | -15.70 | 0.46 | 2.44 |
10–19 | -2.60 | -4.17 | -0.33 | 25.70** | 25.30* | 19.78* |
20< | -11.52 | -12.33 | -20.81 | -8.45 | -14.93 | 24.08* |
. | ||||||
Young: <10 | -0.13 | -2.86 | -6.42 | -10.53 | -2.16 | 5.02 |
Old: ≥10 | -6.58 | -7.81 | -9.47 | 10.28 | 7.49 | 21.67 |
Young-Old | 6.45 | 4.95 | 3.04 | -20.81** | -9.65 | -16.65* |
. . | ||||||
< 100 | 5.21** | 9.87** | 8.79** | 14.38 | 21.17* | 39.79** |
100≤ < 340 | -11.04** | -19.55** | -22.78** | -5.18 | 7.60 | 12.87 |
340 | -2.79 | -4.68 | -8.45 | -13.09 | -22.59** | -14.65** |
. | ||||||
Small: ≤ 200 | -0.93 | 1.24 | -0.29 | 11.13 | 15.02 | 32.80 |
Large: > 200 | -5.22 | -11.61 | -15.52 | -14.07 | -10.93 | -8.50 |
Small–large | 4.29 | 12.85 | 15.23 | 25.21** | 25.95** | 41.30** |
Main | 0.94 | 2.43 | 3.11 | 3.40 | -1.88 | 13.28 |
Secondary | -8.02 | -14.50 | -21.43 | -7.48 | 7.62 | 11.29 |
Main–Secondary | 8.96** | 16.94** | 24.54** | 10.88 | -9.50 | 1.99 |
(Rs.) | ||||||
1 to 11 | -0.52 | -2.41 | -2.69 | 4.19 | 4.69 | 6.56 |
12 to 20 | -2.86 | -5.68 | -5.58 | -9.58 | -12.13 | 10.66 |
21 to 300 | -5.69 | -7.16 | -14.93 | 1.25 | 14.33 | 20.82 |
<28 | -4.45 | -2.17 | -0.09 | 7.27 | -0.02 | 16.87 |
28≤ < 64 | 4.22 | 2.98 | 2.99 | 8.30 | 15.54 | 33.36 |
64≤ < 116 | -2.45 | -19.02** | -26.10** | -6.24 | 8.27 | 19.58 |
≥116 | -9.49 | -2.16 | -7.98 | -14.44 | -14.93 | -19.71** |
2–5 | -7.45 | -8.75 | -13.95 | -14.44 | -5.30 | -1.59 |
6–10 | 3.83 | 4.21 | 12.07** | 19.90** | 26.05** | 18.11 |
11–13 | -2.18 | -7.72 | -14.64 | 11.64 | 16.80 | 49.69*** |
14–15 | -4.37 | -6.14 | -11.27 | -18.22 | -27.29** | -11.03 |
Negative | -1.31 | -1.07 | -6.95 | -1.60 | 6.22 | 15.17 |
Positive | -5.76 | -11.42 | -9.13 | -1.04 | -4.13 | 8.43 |
Negative–Positive | 4.44 | 10.35 | 2.18 | -0.56 | 10.35 | 6.75 |
Privatisation issues | 8.60 | 13.72 | 21.77 | 26.79 | 10.89 | 10.51 |
Conventional issues | -6.50 | -10.69 | -16.59 | -9.65 | -0.53 | 13.09 |
Difference | 15.11** | 24.40*** | 38.36*** | 36.43*** | 11.41 | -2.59 |
Cold year issues | -8.20 | -6.96 | -9.34 | -15.59 | -2.42 | 0.28 |
Hot year issues | -0.84 | -4.30 | -7.14 | 4.65 | 4.09 | 17.39 |
Difference | -7.36** | -2.66 | -2.19 | -20.23** | -6.51 | -17.11* |
This table shows the aftermarket performnace calculatons based on the individual measures. Market-adjusted buy-and-hold returns (BHRs) are calculated for six periods, namely BHR20 to BHR720 , considering 20, 60, 120, 240, 480, and 720 trading days, respectively. AGE denotes the history of the firm from its incorporation and classifies issues up to Rs. 200 million as being small and those above that figure as being large; SIZE denotes the gross proceeds from the IPO and classifies up to Rs. 200 million as being small and above Rs. 200 million as being large. Rs. is Sri Lankan Rupees; BRD denotes the listed board types; PRI denotes the offer price of the IPO; MVL denotes the standard deviation of the daily ASPI for the first 40 trading days prior to the IPO issue; VOL denotes the annual volume of listings in the stock market, and IPOs are categorized into four equal groups based on the number of IPOs went to the public annually; SENT is a proxy for investor sentiment; HOT denotes the hot-period issues and cold-period issues, respectively. Sample t-statistics are used to test the difference between categories, and the overall average BHR s are calculated. Two-tailed sample t-statistics are used to test the difference in mean BHR s (assuming unequal variances). ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.
SIZE reveals the aftermarket returns grouped by the size of the IPO issue, and IPOs are separated into three subgroups with nearly equivalent numbers of IPOs. Our results show that in the long run, smaller issues perform better than do larger issues. Moreover, issues up to Rs. 200 million are categorized as small and those above this figure are categorized as large to investigate the size effect. The small vs. large category illustrates that small issues tend to outperform, except BHR60 returns, whereas large issues underperform all over the periods. The differences in the long run, including for BHR240 are significant at 5%.
The results show that the aftermarket returns of the Main Board listed firms were positive compared to those of the Secondary Board listed firms. BHR480 returns show poor performance for both Main and Secondary listed boards. Conversely, the BHR720 returns for three years show positive values. The long-term return differences between the two different boards are statistically significant up to BHR240 , whereas the BHR480 and BHR720 return differences are not significant. Table 4 shows that two subgroups where the IPO shares were priced either lower than or equal to Rs. 20 performed poorly in the long run.
We divided the sample into equal four subgroups with an equivalent number of observations of 36 firms in each subgroup based on MVL values. When the MVL is high ( MVL ≥116), BHRs are always negative. The other three subgroups tend to show lower aftermarket returns in the short run, and the returns increase gradually with the passage of trading time and end up being positive. Moreover, the results show that 28≤ MVL < 64 subgroup records outperformed stocks continuously throughout the three years, even though values were insignificant. VOL indicates the four equal-sized subgroups grounded on the number of IPOs that went to the public annually. The level of underperformance remains highest for the 14–15 issues that are significant at 5% and tends to decrease when the IPO volume increases. BHRs are positive when the volume is between 6–10, whereas the returns of the other three subgroups do not show a clear pattern.
Furthermore, in the short run, IPOs underperform in both negative SENT and positive SENT in the market condition. BHRs perform worse in the positive SENT than in the negative SENT . During BHR480 and BHR720 , performance shows positive returns for IPOs issued at the time of negative SENT and returns show an increasing trend over the long-term for the negative SENT category. Even though the differences between mean returns in the two groups are statistically insignificant, the findings reveal a negative relationship between positive SENT and long-term IPO performance. Privatization issues are likely to perform better than conventional issues in the long run, up to two years. Privatized IPO issues show a trend of gradually increasing performance during the short time horizon and produce maximum returns during the first trading year of stocks. Conversely, conventional issues performing worse during the first year of trading and stars showing positive returns after the second year. The differences in the BHR20–BHR240 during the first trading year after the IPO issue are statistically significant at the 5% level.
Furthermore, following Rathnayake et al. [ 15 ], Table 4 shows that the BHRs are segmented by hot and cold year issues. According to the results, hot issue period IPOs perform better in the long run than do cold year IPO issues. Over the short-term, both hot issue and cold issue IPOs show negative abnormal returns, with hot issues still performing better than do cold issues. The difference between the two is significant at the 5% level in the first trading month. Long-term hot issues perform well and generate positive abnormal returns throughout BHR240–BHR720 , with a positive trend of increasing returns over longer periods.
The plantation industry has the highest returns BHR20–BHR120 in the short run, and those returns are significantly different from the overall average at the 5% level ( Table 5 ). Interestingly throughout the three years, the plantation industry is the only industry that performs well and generates positive BHRs continuously. Health care, power and energy, services, and trading sector IPOs always underperform in the long run. The underperformance of the power and energy industry differs sharply from the average returns of the sample, and the difference is significant at the 1% level for less than twelve trading months. Interestingly, four industries the beverage, food and tobacco sector, the footwear and textiles sector, the hotels and travel sector, and the manufacturing sector show a similar tendency of BHRs that underperform in the short run and outperform in the long run.
Industry | No. of Firms | Average Aftermarket performance (%) | ||||||
---|---|---|---|---|---|---|---|---|
1 | Banks, Finance and Insurance | 35 | -1.67 | -4.46 | -9.40 | -12.22 | -6.63 | 14.05 |
2 | Beverage, Food and Tobacco | 11 | -3.31 | -1.31 | -3.81 | 10.78 | 0.11 | 12.63 |
3 | Diversified Holdings | 8 | 4.87 | -1.31 | -11.31 | -28.78 | -29.99 | -41.10 |
4 | Footwear and Textiles | 4 | -16.01 | -12.37 | -38.29 | 130.19*** | 139.01*** | 107.83** |
5 | Health Care | 5 | -2.16 | -15.21 | -24.77 | -51.75* | -26.12 | -11.48 |
6 | Hotels and Travel | 18 | -12.49 | -9.58 | -0.17 | 12.87 | 28.09 | 55.51** |
7 | Information Technology | 4 | -8.25 | -1.40 | 2.61 | 35.66 | -3.73 | -57.09 |
8 | Land and Property | 3 | -6.24 | -13.45 | -23.62 | -15.51 | -14.85 | 42.25 |
9 | Manufacturing | 21 | -2.05 | -19.55 | -25.02 | -5.41 | 16.40 | 17.75 |
10 | Motors | 1 | 7.52 | 37.94 | 30.84 | 18.95 | -17.65 | -20.06 |
11 | Plantation | 18 | 11.39** | 24.77** | 28.60** | 13.05 | 7.10 | 17.69 |
12 | Power and Energy | 8 | -4.33*** | -11.25*** | -12.55*** | -27.38 | -32.64 | -33.69 |
13 | Services | 2 | -11.58 | -14.30 | -33.48 | -23.03 | -17.62 | -28.92 |
14 | Trading | 6 | -23.72* | -27.17 | -28.99 | -24.98 | -47.35 | -9.72 |
Total | 144 | -3.04 | -5.09 | -7.80 | -1.38 | 2.14 | 12.46 |
This table gives the sample distribution by the industry; the number of firms and the average aftermarket returns. Market-adjusted buy-and-hold returns (BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. Two-tails sample t-statistics are used to test the difference in the average BHR s in each industry and the overall average BHR s in the sample (assuming unequal variances). ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
First, the OLS assumptions are tested before running the multiple regressions. All the non-dummy variables are normally distributed ( Table 6 ). All the non-dummy variables are stationary at the level according to the Augmented Dickey-Fuller (ADF) unit root test results, which are given in Table 7 . As illustrated in the correlation matrix ( Table 8 ), independent variables do not appear to be substitutes of each other since the correlation between variables is less than 0.5. Only IR and MAAR are 94% positively correlated, but we do not consider IR and MAAR in the same regression model.
Variable | Statsitic | DF | Significanse |
---|---|---|---|
0.917 | 144 | 0.035 | |
0.944 | 144 | 0.044 | |
0.764 | 144 | 0.000 | |
0.843 | 144 | 0.012 | |
0.758 | 144 | 0.000 | |
0.867 | 144 | 0.019 | |
0.755 | 144 | 0.000 | |
0.741 | 144 | 0.000 | |
0.875 | 144 | 0.027 | |
0.727 | 144 | 0.000 | |
0.989 | 144 | 0.044 | |
0.749 | 144 | 0.000 | |
0.888 | 144 | 0.022 | |
0.861 | 144 | 0.025 |
Note: Shapiro-Wilk Normality test statistic values are recorded in the table. Market-adjusted buy-and-hold returns (BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. IR denotes the initial returns; MAAR denotes the market adjusted abnormal return; AGE denotes the history of the firm from its incorporation; SIZE denotes the gross proceeds from the IPO; PRC denotes the issue price of an IPO in Sri Lankan Rupees; SENT is a proxy for investor sentiment; VOL denotes the annual volume of listings in the stock market; MVL refers to the standard deviation of daily market returns for the first 30 trading days after the IPO; HOT denotes the hot-period issues; PRIV denotes the privatization issues; BRD denotes the listed board types; and HTL, PLNT, and BNK are three dummies for the hotel, plantation, and banking industries, respectively. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
Variable | Intercept | Trend and Intercept | |
---|---|---|---|
-11.63*** | -11.93*** | Level | |
-10.14*** | -10.41*** | Level | |
-10.56*** | -10.69*** | Level | |
-9.79*** | -9.91*** | Level | |
-11.31*** | -11.28*** | Level | |
-10.64*** | -10.59*** | Level | |
-9.29*** | -9.73*** | Level | |
-9.81*** | -10.23*** | Level | |
-10.31*** | -10.29*** | Level | |
-6.01*** | -10.92*** | Level | |
-11.47*** | -11.67*** | Level | |
-2.98** | -3.54** | Level | |
-9.29*** | -10.99*** | Level | |
-12.29*** | -12.33*** | Level |
Note: Augmented Dickey-Fuller test statistic values are recorded in the table. Market-adjusted buy-and-hold returns (BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. IR denotes the initial returns; MAAR denotes the market adjusted abnormal return; AGE denotes the history of the firm from its incorporation; SIZE denotes the gross proceeds from the IPO; PRC denotes the issue price of an IPO in Sri Lankan Rupees; SENT is a proxy for investor sentiment; VOL denotes the annual volume of listings in the stock market; MVL refers to the standard deviation of daily market returns for the first 30 trading days after the IPO; HOT denotes the hot-period issues; PRIV denotes the privatization issues; BRD denotes the listed board types; and HTL, PLNT, and BNK are three dummies for the hotel, plantation, and banking industries, respectively. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
Variables | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | ||||||||||||||
0.94*** | 1 | |||||||||||||
0.01 | 0.03 | 1 | ||||||||||||
-0.29*** | -0.26*** | 0.14 | 1 | |||||||||||
0.24*** | 0.27*** | 0.08 | -0.14 | 1 | ||||||||||
0.02 | -0.01 | 0.03 | -0.04 | -0.09 | 1 | |||||||||
-0.07 | -0.07 | 0.19* | 0.20* | 0.09 | 0.32* | 1 | ||||||||
-0.12 | -0.09 | 0.11 | 0.23*** | -0.01 | -0.09 | -0.09 | 1 | |||||||
0.21* | 0.19* | -0.07 | -0.22*** | 0.05 | 0.05 | -0.06 | -0.31*** | 1 | ||||||
0.15** | 0.14** | 0.06 | 0.01 | 0.01 | -0.02 | -0.09 | 0.03 | 0.14** | 1 | |||||
0.09 | 0.10 | 0.01 | 0.11 | -0.05 | -0.01 | 0.21** | -0.22* | 0.32*** | 0.08 | 1 | ||||
0.02 | 0.07 | 0.07 | 0.15** | -0.08 | -0.11 | 0.07 | -0.01 | -0.19** | -0.10 | 0.07 | 1 | |||
0.28*** | 0.17** | -0.12 | -0.37*** | 0.05 | -0.08 | -0.13 | -0.07 | 0.57*** | 0.19** | 0.15* | -0.20** | 1 | ||
-0.12 | -0.09 | -0.21** | -0.12 | 0.08 | 0.02 | 0.02 | 0.04 | -0.16* | -0.07 | -0.08 | -0.21** | -0.14* | 1 |
Note: This table presents the Pearson correlation coefficients for the variables considered in the study. IR denotes the initial returns; MAAR denotes the market adjusted abnormal return; AGE denotes the history of the firm from its incorporation; SIZE denotes the gross proceeds from the IPO; PRC denotes the issue price of an IPO in Sri Lankan Rupees; SENT is a proxy for investor sentiment; VOL denotes the annual volume of listings in the stock market; MVL refers to the standard deviation of daily market returns for the first 30 trading days after the IPO; HOT denotes the hot-period issues; PRIV denotes the privatization issues; BRD denotes the listed board types; and HTL, PLNT, and BNK are three dummies for the hotel, plantation, and banking industries, respectively. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
Table 9 shows OLS results for the aftermarket returns of six dependent variables, BHR20–BHR720 . We used Eqs 12 and 13 for each BHR, considering IR and MAAR , respectively. The multiple regression models explain approximately between 10%–22% of the overall variations of IPO aftermarket performance in the considered sample, which is measured by R 2 . According to our results, the BHR20 , BHR120 , BHR240 , and BHR720 regression models have significant F-statistic values.
Variables | Average Aftermarket performance (%) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
-0.023 | -0.046 | -0.042 | -0.080 | -0.079* | -0.137** | -0.119** | -0.203** | -0.121** | -0.202** | -0.197*** | -0.333*** | |
-0.009 | -0.009 | -0.003 | -0.003 | 0.033 | 0.033 | 0.089 | 0.088 | 0.040 | 0.039 | 0.141* | 0.140** | |
-0.009 | -0.008 | -0.009 | -0.011 | -0.001 | -0.002 | -0.060 | -0.063 | -0.109* | -0.111** | -0.116* | -0.120** | |
0.028 | 0.029 | 0.036 | 0.038 | 0.059 | 0.060 | 0.052 | 0.054 | 0.034 | 0.034 | 0.023 | 0.024 | |
0.059 | 0.061 | 0.098 | 0.101 | 0.133 | 0.139 | 0.142 | 0.151 | 0.029 | 0.037 | 0.198 | 0.212 | |
-0.059** | -0.059** | -0.068** | -0.068** | -0.119** | -0.119** | -0.058 | -0.057 | 0.046 | 0.047 | 0.040 | 0.042 | |
-0.002** | -0.001** | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.002** | -0.002*** | |
0.039 | 0.040 | 0.130 | 0.131 | 0.275** | 0.274** | 0.479*** | 0.481*** | 0.168 | 0.169 | -0.180 | -0.178 | |
-0.074 | -0.072 | -0.116 | -0.113 | -0.088 | -0.084 | -0.018 | -0.015 | 0.043 | 0.046 | 0.171 | 0.176 | |
0.069 | 0.069 | 0.173* | 0.172* | 0.231** | 0.229** | 0.087 | 0.083 | -0.100 | -0.104 | -0.004 | -0.014 | |
0.043 | 0.045 | 0.101 | 0.103 | 0.147 | 0.147 | -0.007 | -0.005 | -0.104 | -0.103 | -0.041 | -0.043 | |
0.135 | 0.150 | 0.255 | 0.281 | 0.274 | 0.318 | -0.250 | -0.187 | -0.193 | -0.131 | -0.164 | -0.267 | |
0.077 | 0.082 | 0.013 | 0.005 | 0.221 | 0.209 | 0.207 | 0.192 | 0.195 | 0.180 | 0.543** | 0.524** | |
-0.092 | -0.062 | 0.008 | 0.051 | -0.282 | -0.238 | 0.752 | 0.810 | 1.965* | 2.015* | 1.653 | 1.746 | |
R | 0.155 | 0.162 | 0.119 | 0.126 | 0.167 | 0.176 | 0.147 | 0.162 | 0.109 | 0.119 | 0.195 | 0.215 |
Prob(F-stat) | 0.347 | 0.031** | 0.189 | 0.150 | 0.024** | 0.015** | 0.071* | 0.038** | 0.320 | 0.234 | 0.013** | 0.005*** |
Observations | 144 | 144 | 144 | 144 | 144 | 144 | 141 | 141 | 137 | 137 | 132 | 132 |
This table shows the regression results. Market-adjusted buy-and-hold returns (BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. IR denotes the initial returns; MAAR denotes the market adjusted abnormal return; AGE denotes the history of the firm from its incorporation; SIZE denotes the gross proceeds from the IPO; PRC denotes the issue price of an IPO in Sri Lankan Rupees; SENT is a proxy for investor sentiment; VOL denotes the annual volume of listings in the stock market; MVL refers to the standard deviation of daily market returns for the first 30 trading days after the IPO; HOT denotes the hot-period issues; PRIV denotes the privatization issues; BRD denotes the listed board types; and HTL, PLNT, and BNK are three dummies for the hotel, plantation, and banking industries, respectively. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
IR and MAAR have a negative relationship with BHR20–BHR720 throughout all the periods. Even the short-term relationship is insignificant, and in the long run there is a significant relationship with BHRs. Our results are in line with the divergence of opinion hypothesis [ 2 , 10 , 13 ]. In the short run, the lnAGE coefficient has a negative sign, and it is statistically insignificant. For the BHR720 period, age and aftermarket returns have a significant positive relationship, which contradicts the previous findings [ 2 , 17 , 35 ] and the fundamentals of risk–return theory. The coefficient of the lnSIZE has a negative relationship with BHRs , and in the long run, including the BHR480 and BHR720 relationship, is significant at the 5% level, as supported by several studies [ 17 , 27 ].
The signs of the two BRD and lnPRI variables are not constant during the sample periods. Although the estimated coefficient on BRD has a positive sign in the short run, it is statistically significant at BHR60 and BHR120 aftermarket returns. BRD has an insignificant negative relationship with BHRs in the long run. lnPRI shows a significant negative relationship with BHR s in the short run and a positive relationship in the long run. MVL coefficient values are always negative and very low. Interestingly, BHR20 and BHR720 coefficients for MVL are statistically significant, thus supporting the hypothesis and previous studies [ 6 , 17 , 25 ]. Further, Wald test results indicate that five coefficients of ex-ante uncertainty are simultaneously equal to zero in all the models, and the results are not supported by the ex-ante uncertainty hypothesis. OLS results show an insignificant positive relationship between lnVOL and BHR20–BHR720 throughout the all periods, which is similar to the findings of Allen et al. [ 27 ] and Hensler et al. [ 28 ]. Also, BHR20–BHR720 are positively related with SENT across the all regression models, which is not consistent with the investor sentiment hypothesis. However, values are not statistically significant.
Consistent with previous studies [ 32 , 33 ], PRV record positive signs of the coefficients for the BHRs except for BHR720 returns, and the coefficient values are significant for BHR120 and BHR240 at the 5% level. The HOT dummy variable coefficients are negative in the short run, and the long-time horizon coefficient values are positive. Regression results indicate that PLNT , HTL , and BNK industries have a positive, though not statistically significant, relationship with short-term aftermarket returns. Over the longer time horizon, HTL coefficients are still positive, and the other two industry coefficients turn negative. For the HTL sector, the only coefficient of HTL is significant at the 5% level for BHR720 returns. Nevertheless, we used the Wald test to test for the joint hypothesis for industry effect ( Table 10 ) and found that the three coefficients of industries are simultaneously equal to zero.
Average Aftermarket performance (%) | ||||||
---|---|---|---|---|---|---|
IR | 1.352 (0.254) | 1.145 (0.338) | 1.787 (0.135) | 1.193 (0.317) | 1.271 (0.285) | 1.614 (0.175) |
MAAR | 1.371 (0.247) | 1.168 (0.328) | 1.787 (0.135) | 1.238 (0.293) | 1.340 (0.259) | 1.708 (0.153) |
IR | 1.446 (0.232) | 1.036 (0.379) | 1.354 (0.259) | 0.993 (0.398) | 0.777 (0.509) | 1.426 (0.239) |
MAAR | 1.663 (0.178) | 1.203 (0.311) | 1.504 (0.217) | 0.706 (0.551) | 0.597 (0.618) | 1.447 (0.233) |
Note: This table presents the Wald joint hypothesis test results. Market-adjusted buy-and-hold returns (BHRi) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. Chi-square test statistics values are given in the table, and the probability of chi-squared values are recorded in parenthesis. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
In the final stage of multiple regression analysis, we checked for the heteroscedasticity and autocorrelation errors in the results ( Table 11 ). Using the Breusch–Pagan, autoregressive conditional heteroscedasticity, and White’s heteroskedasticity tests, we obtained similar results showing that the model residuals do not consist of heteroscedasticity errors. Also, we conducted two autocorrelation tests, the Breusch–Godfrey and Durbin–Watson tests, and ensured that our multiple regression results were free from autocorrelation errors.
Average Aftermarket performance (%) | ||||||
---|---|---|---|---|---|---|
IR | 15.612 (0.275) | 12.061 (0.523) | 14.473 (0.341) | 14.041 (0.331) | 14.033 (0.371) | 20.189 (0.191) |
MAAR | 17.218 (0.189) | 12.487 (0.488) | 15.322 (0.287) | 14.801 (0.319) | 14.164 (0.362) | 19.561 (0.107) |
IR | 2.294 (0.129) | 0.0635 (0.801) | 0.001 (0.976) | 0.113 (0.736) | 0.324 (0.569) | 0.035 (0.851) |
MAAR | 2.056 (0.152) | 0.062 (0.803) | 0.000 (0.992) | 0.133 (0.715) | 0.371 (0.542) | 0.132 (0.716) |
IR | 0.345 | 0.731 | 0.655 | 0.861 | 0.999 | 0.938 |
MAAR | 0.180 | 0.796 | 0.837 | 0.819 | 0.999 | 0.850 |
IR | 0.975 (0.324) | 0.239 (0.624) | 1.282 (0.257) | 2.208 (0.137) | 0.271 (0.603) | 0.061 (0.804) |
MAAR | 1.101 (0.294) | 0.287 (0.592) | 1.351 (0.245) | 1.946 (0.163) | 0.415 (0.519) | 0.008 (0.993) |
IR | 2.146 | 1.922 | 1.829 | 1.768 | 2.132 | 1.883 |
MAAR | 2.156 | 1.916 | 1.826 | 1.787 | 2.151 | 1.921 |
d | 1.550 | 1.550 | 1.550 | 1.550 | 1.550 | 1.472 |
d | 1.924 | 1.924 | 1.924 | 1.924 | 1.924 | 1.949 |
Decision | no | indecision | no | indecision | no | indecision |
Note: This table presents the heteroscedasticity and autocorrelation test results. Decision rule: dL < t statistic > dU = Zone of indecision, t statistic > dU = No autocorrelation, t statistic < dU = Positive autocorrelation. Market-adjusted buy-and-hold returns (BHRi) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. Chi-square test statistics values are given in the table, and the probability of chi-squared values are recorded in parenthesis. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
For the robustness check, we repeated our multiple regression analysis by removing 11 delisted firms which occurs during the 720 trading days from the IPO issue. Our overall results regarding the aftermarket performance of IPOs still hold, but there are very few changes ( Table 12 ). We have found the signs of all explanatory variables to be almost identical and unchanged from the results in Table 9 , except for two minor cases. First, the HOT coefficients are positive in all of BHR20–BHR720 in the new regression results. Second, HTL sector IPOs show a negative relationship in the BHR20 and BHR60 periods and later all show positive aftermarket returns. However, the new results have created some variations in the significance of the variables. Interestingly, all R 2 values are increased, and the significance of the F-statistic remains the same in the new results. Thus, we conclude that our results are robust.
Variables | Average Aftermarket performance (%) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
-0.039* | -0.067** | -0.050* | -0.088* | -0.073* | -0.128** | -0.118** | -0.205*** | -0.115* | -0.193** | -0.202** | -0.337*** | |
-0.017 | -0.016 | 0.004 | 0.005 | 0.034 | 0.035 | 0.083 | 0.085 | 0.024 | 0.026 | 0.147** | 0.149** | |
-0.009 | -0.007 | -0.018 | -0.020 | -0.001 | -0.004 | -0.056 | -0.060 | -0.090 | -0.093 | -0.102 | -0.107 | |
0.037 | 0.039 | 0.014 | 0.012 | 0.026 | 0.029 | 0.075 | 0.079 | 0.046 | 0.049 | 0.024 | 0.030 | |
0.025 | 0.025 | 0.043 | 0.044 | 0.104 | 0.105 | 0.036 | 0.038 | 0.006 | 0.003 | 0.082 | 0.088 | |
-0.058** | -0.058** | -0.001 | -0.001 | -0.058 | -0.058 | -0.039 | -0.039 | 0.048 | 0.049 | 0.056 | 0.057 | |
-0.001** | -0.001** | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.001 | -0.002*** | -0.002*** | |
0.036 | 0.038 | 0.093 | 0.096 | 0.202 | 0.205 | 0.450*** | 0.455*** | 0.159 | 0.163 | -0.223 | -0.216 | |
0.167** | 0.172** | 0.105 | 0.111 | 0.062 | 0.071 | 0.228 | 0.242 | 0.069 | 0.079 | 0.237 | 0.252 | |
0.039 | 0.038 | 0.044 | 0.042 | 0.120 | 0.117 | 0.023 | 0.019 | -0.098 | -0.102 | -0.049 | -0.057 | |
0.076 | 0.077 | 0.063 | 0.065 | 0.063 | 0.065 | -0.031 | -0.027 | -0.114 | -0.113 | -0.045 | -0.046 | |
0.189* | 0.210** | 0.278** | 0.307** | 0.290** | 0.331** | -0.186 | -0.120 | -0.146 | -0.087 | -0.354 | -0.456 | |
-0.107 | -0.109 | -0.025 | -0.027 | 0.139 | 0.135 | 0.171 | 0.165 | 0.111 | 0.107 | 0.661** | 0.653** | |
-0.052 | -0.025 | 0.070 | 0.111 | -0.314 | -0.258 | 0.762 | 0.854 | 1.685 | 1.751 | 1.544 | 1.660 | |
R2 | 0.202 | 0.212 | 0.128 | 0.139 | 0.161 | 0.174 | 0.175 | 0.195 | 0.091 | 0.101 | 0.203 | 0.223 |
Prob(F-stat) | 0.009*** | 0.005*** | 0.195 | 0.137 | 0.059* | 0.033** | 0.033** | 0.013** | 0.559 | 0.441 | 0.012** | 0.005*** |
Observations | 133 | 133 | 133 | 133 | 132 | 132 | 131 | 131 | 130 | 130 | 127 | 127 |
This table presents the robustness regression results after excluding 11 delisted firms from the sample. Market-adjusted buy-and-hold returns (BHR i ) are calculated for six periods namely BHR20 to BHR720 considering 20, 60, 120, 240, 480 and 720 trading days respectively. IR denotes the initial returns; MAAR denotes the market adjusted abnormal return; AGE denotes the history of the firm from its incorporation; SIZE denotes the gross proceeds from the IPO; PRC denotes the issue price of an IPO in Sri Lankan Rupees; SENT is a proxy for investor sentiment; VOL denotes the annual volume of listings in the stock market; MVL refers to the standard deviation of daily market returns for the first 30 trading days after the IPO; HOT denotes the hot-period issues; PRIV denotes the privatization issues; BRD denotes the listed board types; and HTL, PLNT, and BNK are three dummies for the hotel, plantation, and banking industries, respectively. ***, **, * denote significance at the 1%, 5%, and 10% level, respectively.
This study focused on the evaluation of the performance of initial price offerings (IPOs) price performance up to 36 months including the listing day in terms of market-adjusted buy and hold returns (BHRs) and market-adjusted cumulative average returns (CAARs) and the practicality determinants at the time of IPO issues to find explanations for the IPO aftermarket performance. Average market-adjusted returns and CAARs are always lower than 1%. Averagely abnormal returns are negative in the short run, and abnormal returns gradually become positive in the long run. Over the three years, IPOs outperform with positive 12.46% BHRs. We found that initial returns have a long-term significant negative relationship with all BHRs and that the outcomes are consistent with the divergence of opinion hypothesis. Market volatility and aftermarket returns are negatively related throughout the all considered periods. Privatized IPOs show a significant positive relationship with one-year aftermarket returns. Hot issue period IPOs are positively related with first trading month aftermarket returns, while other periods are not significant. Similarly, plantation sector IPOs show a positive and significant relationship in short run BHRs. We do not accept the ex-ante hypothesis in aftermarket performance as five variables age of the firm, issue size, listed board effect, market volatility, and the IPO price are jointly not significant. Aftermarket returns are positively related with investor sentiment, and the annual volume of listings are based on the firm went to the public. For the robustness check, we re-estimated the multiple regressions by using the sample of 133 firms after removing delisted companies from the original sample. We found that the signs of most of the explanatory variables are unchanged and remained the same as the full sample results.
Consequently, we suggest that investors should hold their subscriptions of IPO shares for a prolonged time frame, usually exceeding two years, as the dynamic of shares rewards the investors with positive abnormal returns in the long run. Though intrinsic characteristics of IPO firms may constitute a bias to this pattern, it is still worthwhile for investors in emerging stock exchanges to monitor the performance of IPO firms over the long-run.
Acknowledgments.
We greatly appreciate the comments and suggestions given by the Journal Editor and anonymous referees.
This research was funded by the Shandong University of Technology Ph.D. Startup Foundation (Grant No. 719017) and National Social Science Foundation of China, Grant No. 21CGL050. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. No any authors received a salary from the above mentioned funder.
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