The New Issues Puzzle

Companies issuing stock during 1970 to 1990, whether an initial public offering or a seasoned equity offering, have been poor long-run investments for investors. During the five years after the issue, investors have received average returns of only 5 percent per year for companies going public and o...

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Bibliographic Details
Published in:The Journal of finance (New York) 1995-03, Vol.50 (1), p.23-51
Main Authors: LOUGHRAN, TIM, RITTER, JAY R.
Format: Article
Language:English
Subjects:
Book value
Business structures
Common stock
Equity
Financial investments
Going public
Initial public offerings
Investment
Investors
Nasdaq Composite Index
Portfolio performance
Rates of return
Regression analysis
Seasoned equity offerings
Stock exchanges
Stock offerings
Stocks
Studies
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Summary:Companies issuing stock during 1970 to 1990, whether an initial public offering or a seasoned equity offering, have been poor long-run investments for investors. During the five years after the issue, investors have received average returns of only 5 percent per year for companies going public and only 7 percent per year for companies conducting a seasoned equity offer. Book-to-market effects account for only a modest portion of the low returns. An investor would have had to invest 44 percent more money in the issuers than in nonissuers of the same size to have the same wealth five years after the offering date.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1995.tb05166.x