A Survey of the European IPO Market

Carole Gresse () and Jean-François Gajewski ()
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Carole Gresse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Jean-François Gajewski: IRG - Institut de Recherche en Gestion - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12

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Abstract: Based on a sample of 15 European countries, this survey analyses various features of the European IPO market over the past decade from 1995 to 2004: listing requirements, IPO-mechanism choices, performance and secondary market liquidity.First, the comparison of national primary market regulations, in spite of the commonly observed segmentation between Main, Parallel and New Markets, shows a great diversity in listing requirements and reveals that primary market's mechanisms are almost always monitored by investment banks, which then control initial pricing and allocation of new issues. The examination of issuers' practices in terms of IPO mechanisms puts forward the thrive in the late nineties and the current prominence of book-building.Second, our empirical analysis of IPO short-term and long-term performance confirms, with a few exceptions, commonly admitted patterns, but also show discrepancies between countries, periods, sector and primary listing mechanisms. Average initial underpricing amounts to 22% over our pan-European sample and is observed at various levels in each of the 15 countries of the sample. Empirical evidence on long-term performance is less clear. Results are not benchmark-dependent but sometimes differ between measurement methods. However, consistently with previous studies, significant underperformance is found at the 3-year horizon with all methodologies and in all countries, except Greece and Portugal.Finally, using a sample of IPOs undertaken on Euronext between 1995 and 2004, our study examines the relationship between initial returns and post-listing liquidity in the short and in the long-run. We support the illiquidity-compensation hypothesis. Initial underpricing is positively linked to information asymmetry in the after-market. It produces higher turnover immediately after the IPO but has no effect on trading volumes after the first year of trading, so that this liquidity effect cannot be assigned to ownership structure but is more likely attributable to the interest underpriced stocks generate.

Keywords: auction; book-building; fixed-price offer; listing requirements; IPO; underpricing; long-run performance; IPO mechanism (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (16)

Published in 2006

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00153343

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