The Price Performance of Initial Public Offerings in Taiwan

This study presents some evidence on the price performance of initial public offerings (IPO’s) on the Taiwan stock market. A data set of 296 IPO’s over the period from January 1995 to May 2000 is analysed. The results show that positive abnormal returns are earned by firms listed on the Taiwan Stock Exchange (TSE) and the Republic of China Over-the-counter Securities Exchange (ROSE). The results show that on average, abnormal returns on TSE and ROSE are positive for the holding period up to 36 months. This result is contrary to majority of prior studies in other countries, such as Ritter (1991) in USA and Levis (1993) in UK etc, but similar to Dawson (1987) who reported long-run abnormal return of 18.2 percent in Malaysia. IPO’s long run performance was higher than the industry benchmark as well as all-index benchmark. The reported results support the view of Affleck-Greaves et al.(1993) that higher listing standards reduce expected underpricing and Ritter (1991) that the benchmark employed is sensitive to the measurement of long-run performance. The results also indicate the existence of the speculative bubble theory in the Taiwan market.