Post-Issue Operating Performance Of Nasdaq IPOs

Abstract

In the ’90s bullish stock markets, it was the IPO which created the bubble of ‘excessive exuberance’, particularly in the technology-heavy NASDAQ market. In our study we have taken a fair sample of NASDAQ IPOs issued during 1990-2000 in order to examine the post-issue operating performance of these IPOs. We have found that during 1990-1995, the mean post-issue one-month return was 1.67%, the mean six-month return was 4.28%, and the mean one-year return was 5.23%, respectively. This could be compared with the results for the 1996-2000 period when the mean one-month return was 3.29%, mean six-month return was 16.96%, and the mean one-year return was 19.97%, respectively. As for the debt/asset and debt/equity ratios for the same two periods, the former was 11.98% and 15.23% for the two periods, and the latter ratio was 5.38% in 1990-1995 and 3.13% in 1996-2000. This clearly shows that the NASDAQ bubble was mainly created by the equity issues, not by the issuance of debt securities. Using the multiple regression equations, we also have found that only the first-day closing price was consistently and negatively associated with annual returns. Obviously, the phenomenon of initial underpricing played a big role in determining the annual return of the NASDAQ IPOs during the last decade in the U.S. securities markets.