Underpricing and the long-run performance of football club initial public offerings

Abstract

The main purpose of this study is to examine the level of initial returns and long-run performance of football club initial public offerings. In addition, the study aims to provide a possible answer for the non-existing interest of listing football clubs. Each of the IPOs are studied individually. The hypothesis state that the football club IPOs are underpriced and perform poorly in the long-run as previous studies of initial public offerings have found.

The data used for this study covers nine initial public offerings issued in seven different markets during 1995-2012. It covers 41% of all publicly traded football clubs. The short-run performance is analysed with the first day returns and with the abnormal first day returns. The long-run performance is examined with the holding period returns and market adjusted holding period returns. In addition, the wealth relatives are presented as well to examine the long-run performance of football club IPOs. The intervals for the long-run performance are 6-, 12-, 24- and 36-months.

The initial abnormal returns for football club IPOs vary from -53% to 20% with the majority of the results being negative. The long-run performance results also differ a lot. The worst performing club provides a negative return of 75% after three years. On the other hand, the best performing club generates astonishing 337% returns after three years.

The results for initial underpricing and long-run performance are all rejected because of the issues with data availability. The small sample size cause the results to be unreliable. It is left for the reader to decide what to conclude from the findings as no empirical evidence can be provided to back the results.