The long run underperfromace of IPO's: a case study of Deutsche Telekom

Sammanfattning: This thesis surveys the literature on IPO’s, in particular, its primary underlying reasons on long-run underperformance. The aim is to review theories regarding the long-run underperformance, and evaluate whether or not these theories can explain this phenomenon. A case study of Deutsche Telekom serves to assess the explanatory supremacy of the existing theories regarding the long-run underperformance of IPO’s. We find that one could not argue separately that the theories stated are the only explanation of the IPO characteristics; one has to take into consideration the potential affection of the measurement problem highlighted by Fama among others. However, the theories we conclude to be best applicable are the ones based on heterogeneous expectations, as illustrated with the case. We argue that the reality regarding the long-run underperformance of IPO’s is somewhere in between these to points of views and that it is important to have both of them in mind when examining any case.