Reassessing the Long-Run Abnormal Performance of Jordanian IPOs: An Event Study Approach

Abstract

This paper examines and reviews the fundamental challenges that academicians face when using the event study methodology to assess the long-term consequences of financial events on the economy and to describe market reactions. Numerous studies have demonstrated that businesses can experience abnormal returns from 1 to 5 years after major financial events. Also, this paper investigates the long-run price performance of initial public offerings (IPOs) in Amman Stock Exchange (ASE). The sample period expands from 2018 to 2022. Various findings are obtained by employing several analytical methods. First, long-run price performance of IPOs is negative, and a strong evidence shows that the long-run performance is sensitive to the benchmark employed. To assess the long-term performance of IPOs, I used both cumulative abnormal returns (CAR) and buy-and-hold abnormal returns (BHAR) as aggregated models. I explained the methodology which is adopted in this study in detail for the event–time approach. However, I used the crucial values for the skewness-adjusted t-statistic to infer statistical tests. Even though BHAR provided weaker results, all methods indicated negative long-run abnormal returns for IPOs. Yet this performance varied when comparing the performance utilizing ASEI, Fama–French three-factor (FF3F), and matching firm (MF) as benchmarks.

Keywords

• event methodology
• abnormal return
• benchmark
• ipos
• skewness-adjusted test
• g140
• g150