UK IPOs: Long Run Returns, Behavioural Timing and Pseudo Timing

In this paper we examine a comprehensive set of 2,499 UK IPOs launched between mid-1975 and the end of 2004. We find compelling evidence of long run under-performance that persists for between 36 and 60 months post-flotation, depending on the precise method chosen to measure abnormal returns. Following <link rid="b32">Schultz (2003)</link>, we ask whether our results are consistent with 'pseudo-timing'. Equally-weighted returns in calendar time provide further evidence of under-performance, a result that favours the <link rid="b27">Loughran and Ritter (2000)</link> behavioural timing hypothesis rather than the <link rid="b32">Schultz (2003)</link> pseudo-timing hypothesis. However, we show that this under-performance is concentrated in AIM and USM stocks. When we measure value-weighted returns in calendar time we find that abnormal returns are not significantly different from zero. Further analysis shows that, consistent with the findings of other studies, IPO under-performance is concentrated in smaller firms. Copyright (c) 2010 Blackwell Publishing Ltd.