Banking Industry IPO Returns: A Test of the Informational Asymmetry Hypothesis

This study examines IPO returns for commercial banks and savings banks over the period 1975 to 1994. These financial firms have traditionally been eliminated from IPO studies due to the regulatory nature of the industry. Logue’s (1973) justification for excluding these firms is that they would create a downward bias in any IPO study as a result of the market’s more accurate pricing of these issues. The results indicate that positive abnormal returns exist, but are considerably less than in other non-financial industries. One possible explanation is that banking assets are generally easier to price due to their marketability.