The underpricing and long run performance of initial public offerings - Evidence from Turkey

Abstract: This study investigates the underpricing and long run performance of initial public offerings in an emerging market economy, Turkey, by using event study methodology. Consistent with the evidence from international experiences, Turkish IPOs are underpriced by 7.3 percent on average during 1999-2007. Underpricing is higher in financials compared to non financials as measured by the first trading day market adjusted returns. Turkish IPOs are underpriced more in bullish markets consistent with “hot issue” markets. Pre event market trend is the most significant variable affecting underpricing while firm specific characters have minor effects in underpricing. 12 months after the offer, IPOs underperform the market by 12.4 percent. Firms with lower initial returns underperform more in contrast to international evidence though this result seems sensitive to the choice of the time interval.