The share prices of most UK initial public offerings or flotations (IPOs) have underperformed their peer groups by substantial margins
Financial Times highlights Business School research
New research by Professor Alan Gregory of the Business School and Cherif Guermat from the University of the West of England has been summarised in the Financial Times this week. Their work has revealed that the share prices of most UK initial public offerings or flotations (IPOs) have underperformed their peer groups by substantial margins.
By analysing every IPO launched between mid 1975 to the start of 2005 (2567 in total) and looking at the share price after five years, the research showed the worst performers were the smaller companies, with AIM companies displaying underperformance of 36% three years after flotation, and 74% after five years.
Professor Gregory commented ‘Part of the reason that the performance of these companies is so poor is because a notable proportion end up bankrupt. A small company IPO could end up being a very risky investment.’
UK IPOs: Long Run Returns, Behavioural Timing and Pseudo Timing (University of Exeter: Alan Gregory and Cherif Guermat). The full research paper can be viewed at http://xfi.exeter.ac.uk/workingpapers/0806.pdf
Date: 9 October 2009