PRICING INITIAL PUBLIC OFFERINGS - FURTHER EVIDENCE FROM GERMANY

In a recent article in this Review, Wasserfallen and Wittleder (Pricin g initial public offerings: Evidence from Germany, European Economic R eview 38, 1505-1517, 1994) [WW] provide evidence of the well-known und erpricing phenomenon for 92 German IPOs coming to market in 1961-1987. Using a larger sample of 189 firms from 1970-1993, this paper (i) rea ssesses the evidence on underpricing in Germany, after choosing a diff erent risk proxy to avoid potential endogeneity problems, and (ii) pro vides evidence of long-run IPO performance. A number of new results em erge. Stock market returns, the macroeconomic climate, insider retenti on rates, and inverse offer size all affect underpricing positively. O ver longer horizons German IPOs are poor investments, losing more than twelve percent over their first three years of trading relative to th e market (exclusive of the initial underpricing return), Negative perf ormance is heavily concentrated after the end of WW's sampling period, in the post-1987 cohort. (C) 1997 Elsevier Science B.V.