An analysis of the stock market performance of new issues in New Zealand

This study measures abnormal stock market returns of unseasoned new issues on the New Zealand Stock Exchange. Substantial positive abnormal returns are obtained on the first listing day and this finding is similar to that reported in other nations. Initial market valuations are related to the profit forecasts contained in prospectuses. The provision of IPO profit forecasts in New Zealand is an important signal of company value. Long-run performance is measured by comparing the returns on new issues and returns on a benchmark made up of matched companies over periods of one, three, and five years. On average, the new issues significantly underperform the market. The level of long-term underperformance is significantly related to profit forecast accuracy, corporate earnings and cash flows, and growth rate.