IPOs performance evaluation: Which methodology to opt for?

Sanae Ait Jillali () and Mohammed Belkasseh
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Sanae Ait Jillali: Université Hassan 1er [Settat], Ecole Nationale de Commerce et Gestion - Settat
Mohammed Belkasseh: Université Hassan 1er [Settat], Ecole Nationale de Commerce et Gestion - Settat

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Abstract: Each corporate event of interest could be analyzed through several approaches. In the recent finance literature, there are common methods emanating from two notorious approaches, that are: the CAR and BHAR methods belonging to the event study approach, and those that fall into the second approach of calendar time, namely the CTAR, and the asset pricing models; starting with the Fama and French's threefactor model to the refined multi-factor models. The Initial Public Offering (IPO) is a corporate event that consists of the operation to open up the capital to investors, it is a strategic decision where companies make that step toward the capital market, especially the stock exchange market, and go from private to public. This event can be analyzed and studied through the approaches named above, based on the computation of abnormal returns around the IPO event, which, in turn, could be calculated through the statistical models (Constant Mean Return Model, Adjusted Market Return, Market Model) and economic ones (Capital Asset Pricing Model (CAPM), Arbitrage Pricing Theory (APT)). Both approaches (the event study, and the calendar time) have been and still are under criticism, according to many researchers the outcomes and findings depend on the methodology used to evaluate the performance of IPOs from the first step of defining abnormal returns, to the application of methods assembling them, till the test of the null hypothesis. The following paper is a kind of literature review where we tried to assemble a number of theoretical and empirical papers and works containing the pieces of information we need to aid in answering this question of evaluating the IPO's performance through different methods and arbitrating between them.

Keywords: Ipos performance; Abnormal returns; Event-study approach; Calendar time approach (search for similar items in EconPapers)
Date: 2023-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04322482
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Published in International Journal of Innovation and Scientific Research, 2023, 69 (2), pp.314-330

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