Initial and Long-Run Performance of Mining IPOs in Australia

This paper provides an empirical analysis of the pricing of initial public offerings (IPOs) of mining firms in Australia. Based on a sample of 130 mining IPOs issued during the period 1979 to 1990, the results show an average underpricing of 107.18%, significantly higher than that previously documented for industrial firms. An examination of the data shows that the delay between prospectus registration and listing dates, and the state of the market when the IPO is issued are the main explanatory variables for the observed underpricing. There is some evidence that the firm’s age, issue size, growth potential and the underwriter’s reputation can also, on a univariate basis, explain underpricing. Contrary to existing evidence on Australian industrial IPOs, mining IPOs in Australia, on average, do not appear to significantly underperform the market in the long-run. The cross-sectional tests show that the level of informed demand (proxied by delay in listing) is by far the most significant explanatory variable for the long-run performance of mining IPOs. There is also evidence supporting a curvilinear relationship between underpricing and the one-year and two-year share returns.