The Long-Run Performance of Initial Public Offerings,

The underpricing of initial public offerings (IPOs) that has been widely docu- mented appears to be a short-run phenomenon. Issuing firms during 1975-1984 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 compan- ies that went public in high-volume years faring the worst. The patterns are consist- ent 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. ” TheJournaZofFinance, Vol. XLVI, No. 1 (March 199 1)) pp. 3-27. (Reprinted with permission of The Journal of Finance.)