LONG-RUN PERFORMANCE OF IPOs: COMPARISON BETWEEN CARs AND BHARs

Abstract

Initial Public Offerings is public offering in which the company offers a partial ownership in the form of shares at specified price with the expectation of increasing value of the company in the long-run. Some researchers have different views about the phenomenon of long-run performance. Some of them find the underperformance of long-term return performance and the others find the outperformance. Apart from long term underperformance, there is also different opinion among researchers in measuring the long-run performance. Ahmad-Zaluki et al. (2007) find that abnormal returns measurement in long-run has different results according to the method used. This study is conducted to examines the long-run performance of initial public offering (IPO) and the differences of long-term return performance results after IPO using two different methods, cumulative abnormal returns (CARs) and Buy-and-Hold Abnormal Returns (BHARs) in Indonesian Stock Exchange in Indonesia Stock Exchange in 2005-2009. This study is examined three variables, namely Market Adjusted Initial Return (MAIR) on first day trading, CARs and BHARs to determine short-run performance, long-run performance, and differences of CARs and BHARs in measure long-run performance. For comparative purpose, real return (RR) of firm in the short-run also examined.Each variable are divided into full sample and subsamples, which are firm size, and B/M ratio. The rank of firm size and B/M ratio are conducted to determine the firm conducted IPO performance based on them. MAIR is examined using one sample Wilcoxon-test while CARs and BHARs are compared using paired samples ttest and Wilcoxon test. The results of the long-run performance of IPOs due to CARs and BHARs are generally underperformed especially in low firm size and B/M ratio. Comparison of CARs and BHARs in full sample and firm size group ranks is significant different while in B/M ratio group ranks is not significant different.