The Relationship Between IPO Returns and Factors Influencing IPO Performance: Case of Istanbul Stock Exchange by M. Banu Durukan, Faculty of Business, Dokuz Eylul University, Isletme Fakultesi, Kaynaklar Yerleskesi, Buca 35160, Izmir, Turkey Abstract The pricing and performance of IPOs is one of those issues that never are laid to rest in the finance literature. As a result of the long-standing debate on the reasons of abnormal initial returns from IPOs and long-term under-performance of IPOs, various hypotheses have been formulated by finance researchers. The empirical finance literature contains both supporting and conflicting evidence for these hypotheses. Consequently, the present study aimed to investigate the IPO returns by the data generated by an emerging market, namely ISE, for the period from 1990 to 1997, in two stages. In the first stage, the rela- tionship between the returns is analyzed by comparing mean returns and by univariate re- gression analysis. In the second stage, the determinants of returns are examined by cross sectional analysis and multivariate regression analysis. The findings of the present study provide evidence to the fads hypothesis and the Winner’s Curse hypothesis. Moreover, the factors that decrease the uncertainty associated with the IPOs are found to lead to lower returns. It must also be emphasized that the findings of the study does not provide evidence of long-term underperformance. I. Introduction The pricing and performance of initial public offerings (IPOs) is one of those empirical issues that incessantly attract the attention of many researchers in finance. Even though there is extensive empirical evidence on the abnormal initial returns provided by IPOs, the “hot issue markets” and long-term under performance of IPO shares, the search for the reasons of these anomalies is still unresolved. However, this ongoing quest for the reasons of IPO underpricing and long-term underperformance has generated various hy- potheses such as the winner’s curse hypothesis, the certification hypothesis, the signal- ling hypothesis, the market feedback hypothesis, the lawsuit avoidance hypothesis and the fads (impresario) hypothesis. All these hypotheses have their limitations and there exist supporting as well as con- flicting evidence for all. Moreover, these hypotheses are formulated based mainly on the analysis of the data of developed markets. At this juncture, of particular interest, how- ever, is the investigation into the degree of applicability of these formulated hypothesis to other types of economic settings, i.e. the emerging markets. This is the issue that has vir- tually received little explicit attention in empirical studies on the return analysis of IPOs. Moreover, the studies investigating this issue dominantly concentrated on the markets of the Far East Asia. The present study by explicitly recognizing this issue, aims to provide an insight primarily into the Winner’s Curse and fads hypotheses, by focusing on a) the relationship between initial return and long-term return to the IPOs, b) the components of initial return, c) the determinants of IPO returns in Istanbul Stock Exchange (ISE) which stands out as an emerging market. Managerial Finance 18