The winner's curse, legal liability, and the long-run price performance of initial public offerings in Finland

Rationing data for initial public offerings (IPOs) in the Finnish market make possible a test of Rock's (1986) winner's curse hypothesis. The evidence from 80 IPOs issued between 1984 and 1989 confirms the presence of the winner's curse: average returns adjusted for the bias in allocation are lower than average unadjusted returns. But the initial returns of these IPOs appear unrelated to lawsuit avoidance, as the sample firms seem unlikely to incur legal liabilities. In the long run, consistent with the evidence in the United States, the IPO firms substantially underperform the Helsinki Stock Exchange value-weighted index.