The long run performance of initial public offerings in South Africa

Abstract

The current research was undertaken to determine the long run performance of Initial Public Offerings (IPOs) listed on the Johannesburg Stock Exchange (JSE) in South Africa. The three year abnormal returns were assessed for IPOs listed between 1995 and 2006 comprising a sample of 229. Using the Buy and Hold Abnormal Return (BHAR) and Cumulative Abnormal Return (CAR) methods, it was found that the IPOs underperformed the market by 50% and 47% for BHAR and CAR respectively. The JSE All Share Index was used as a benchmark. The research also investigated the effect of firm size on IPO performance. The relationship between IPO activity and performance was analysed as well as the performance of IPOs from different sectors. Gross proceeds of the offers were used as a proxy for firm size and it was shown that by splitting the sample into different size groups, there were significant differences between the returns from these groups. There was no relationship found between IPO activity and performance using a linear regression. Using an Analysis of Variance (ANOVA) it was determined that there were significant differences between the performance of IPOs in the different sectors of technology, industrials, financials and mining. Copyright