Journal of Real Estate Finance and Economics, 24:1/2, 103±117, 2002
# 2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
Initial Public Offerings: Evidence from the British,
French and Swedish Property Share Markets
Tinbergen Institute, The University of Amsterdam
Maastricht University, The University of Amsterdam and Kempen & Co.
This paper investigates the underpricing and long-run performance of initial public offerings (IPOs), using a
unique sample consisting of 54 British, French and Swedish property companies, which became publicly listed
during the period 1984±1999. Similar to common stock IPOs, the European property share IPOs in our sample
outperformed the benchmark on the ®rst day of trading, on average with 2.55 percent. However, these property
share IPOs tend to underperform their benchmark over the twelve-month period subsequent to the initial offering.
We also examine explanatory factors such as issue size, the degree of debt ®nancing, ex-ante uncertainty, and the
underlying property types of the companies involved. The results are in line with those previously found for
Key Words: IPO underpricing, equity issues, property companies
Numerous studies have examined the performance of initial public offerings (IPOs) and
documented the existence of short-run excess returns in combination with long-run
underperformance. Ibbotson (1975) was among the ®rst to report on the so-called
``underpricing'' of IPOs by documenting initial excess returns of 11.40 percent on U.S.
common stock IPOs.
Studies on the long-run aftermarket price behavior, such as Ritter
(1991) and Aggarwal and Rivoli (1990), showed that this initial outperformance appears to
be a short-run phenomenon. The winner's curse theory, signaling-based models, and the
theory that IPO performance is driven by fads have been used to attempt to explain this
puzzling abnormal price behavior. However, numerous unanswered questions remain.
This paper tests implications derived from existing theories by studying a unique data
set consisting of 54 European property companies from France, Sweden and the United
Kingdom that became publicly listed during the period 1984±1999. We investigate
whether the classical abnormal price behavior surrounding IPOs also exists in these
Author for correspondence: Dirk Brounen, The University of Amsterdam, Roetersstraat 11, NL-1018 WB