Authors: Apostolos Dasilas, Evangelos Mavroudis Doumpas

Title: The short and long-term market reaction of FinTech IPOs

Abstract

The rapid technological development of the last few decades has given rise to new providers of financial services known as financial technology (FinTech) firms. These companies use disruptive technologies to provide financial services, such as digital payments, personal finance, alternative lending and alternative financing. FinTech firms can provide financial services at a lower cost than conventional banks. In particular, Dietz et al. (2016) showed in their report that banks can reduce their cost savings up to 60% using FinTech solutions.

The FinTech sector is one of the fastest growing sectors with several companies seeking to go public. However, the FinTech sector is at nascent stage and there is a dearth of studies that examine the short- and long-term performance of FinTech Initial Public Offerings (IPOs). The current study aims at filling this lacuna by delving into the short and long-term market behaviour of 84 FinTech that went public across the world for the period 1986-2022. We employed the event study methodology (CARs and BHARs) to measure both the short- and long-term market reaction surrounding the IPO dates.

Our results reveal an abnormal reaction of three days of 5.03% and average cumulative abnormal returns (CAAR) equal to 3.49%. These findings are consistent with the underpricing hypothesis. One year subsequent the IPO, FinTech firms incurred losses of 17.19% as calculated by the buy-and-hold returns (BHARs). Moreover, the BHARs of 24 months are equal to -21.87%. These findings are in line with the overreaction phenomenon which is commonly encountered in IPO studies. Future research should be directed to the investigation of the market reaction of different types FinTech firms. Moreover, future research could examine the determinants of the short- and long-term market reaction of FinTech IPOs.