THE WINNERS CURSE, LEGAL LIABILITY, AND THE LONG-RUN PRICE PERFORMANCE OF INITIAL PUBLIC OFFERINGS IN FINLAND

Rationing data for initial public offerings (IPOs) in the Finnish mark et make possible a test of Rock's (1986) winner's curse hypothesis. Th e evidence from 80 IPOs issued between 1984 and 1989 confirms the pres ence of the winner's curse: average returns adjusted for the bias in a llocation are lower than average unadjusted returns. But the initial r eturns of these IPOs appear unrelated to lawsuit avoidance, as the sam ple firms seem unlikely to incur legal liabilities. In the long run, c onsistent with the evidence in the United States, the IPO firms substa ntially underperform the Helsinki Stock Exchange value-weighted index.