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Prior studies have examined initial public offering (IPO) market performance in two
different periods-short run and long run-in terms of two phenomena: the underpricing or
short-run market phenomenon and the underperformance or long-run market phenomenon.
Tofind out the possible theoretical reasons for the underperformance phenomenon, this
study reviews the past literature on the long-run market performance ofIPOs. The evidence
on long-run underperformance of IPOs is not as widespread as that of short-run
underpricing ofIPOs. The previous researchers have explained long-run performance using
behavioural theories, methodological issues and short-run underpricing theories. Some
researchers have found that IPOs underperform marginally or have no abnormal
performance in the long run; thus, they do not reject the market efficiency hypothesis in the
long run. Others have reported that IPOs overperform or do not underperform in the longrun market. Still others have argued that underperformance disappears when different
performance measures or methodologies are used. The rest have found that' IPOs
underperform considerably in the long-run IPO market. However, the long-run
underperformance ofIPOs is a debatable issue amongfinancial researchers because of their
studies Iconflicting results and controversial findings.
