IPOs in New Zealand : An Analysis of Benchmark-Adjusted Performance

This chapter examines the performance of 96 initial public offerings (IPOs) listed on New Zealand Stock Exchange (NZSX) during the 25-year period from July 1991 to June 2015. The NZX Gross All Index and two portfolios of matched peers based on sector/industry and either sales forecast or book-to-market ratio are constructed as benchmarks. Compared with three benchmark portfolios, IPO firms outperform in the short term (one year) but underperform in the medium- and long-term investment horizons (three to five years). The authors conduct three subsample analyses to examine the association between differences in valuation multiples (E/P, EBITDA/EV, and P/S) and long-term returns. The findings are consistent with the general consensus of superior returns from value investments: IPOs with above-median earnings ratio (E/P and EBITDA/EV) and below-median P/S exhibit higher cumulative average return (CAR) than IPOs with below-median earnings ratio and above-median P/S