Jay Ritter is a Professor of Finance at the University of Florida’s Warrington School of Business. He has become known as «Mr IPO» for his substantial work on IPOs through the years, starting with his PhD dissertation about IPOs at the University of Chicago in 1981.
Through his work, Jay Ritter has attempted to provide data-driven insights into the dynamics of IPOs across the world. His work has focused on the under-pricing, or day 1 performance, of IPOs, as well as the long-term performance of those IPOs versus the market. Jay has also focused on making his data and analysis public, and maintains a trove of IPO-related data on his website.
With Jay, we discuss the critical importance of valuation for IPO success, the differences between institutional and retail-focused IPOs, the takeaways for management teams, and innovations in the IPO process.
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Disclaimer: The discussion in this episode is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments or an offer for financial services or any other transaction. The information contained in the recording has no contractual value and is intended for informational purposes only. Amundsen Investment Management and the participants in this podcast may have holdings in the companies being discussed. Any views expressed are those of the guests only, and not of Amundsen Investment Management.
[0:06] Per Einar Ellefsen: Today we’re hosting Jay Ritter, Professor in the Department of Finance at the University of Florida. Professor Ritter has become known as Mr. IPO for his substantial work on IPOs through the years, starting with his PhD dissertation at the University of Chicago in 1981.
[0:48] Per Einar Ellefsen: Through his research, Jay has provided data-driven insights into the dynamics of IPOs across the world. His work has focused on the underpricing or day-one performance of IPOs, as well as the long-term performance of those IPOs versus the market.
He’s also known for making his data public — maintaining a trove of IPO-related data on his website.
With Jay, we discuss the critical importance of valuation for IPO success, the differences between institutional and retail-focused IPOs, key takeaways for management teams, and innovations in the IPO process.
[1:43] Per Einar Ellefsen: Jay, thank you very much for joining the podcast today. For those who may not be familiar with your work, could you give us a brief overview of your research and what drew you to the field of IPOs?
[2:01] Jay Ritter: I began working on my PhD dissertation at the University of Chicago, where I had the good fortune of studying under eight Nobel Prize winners. I wanted to study financial markets where information problems between buyers and sellers mattered — and the IPO market was a natural place to look.
This was 1979, when the IPO market had been dead for six years. If I’d been more in tune with practitioners, I probably would’ve been told: “Forget IPOs — nobody cares.” But as it turned out, I started working just before a twenty-year boom in IPOs worldwide. Sometimes it’s better to be lucky than smart.
[2:45] Jay Ritter: My main focus has been initial public offerings of common stock — mostly U.S., but also Europe, Japan, Taiwan, and China. On my website, I have IPO data from 55 countries. Some have tiny markets and very few IPOs, others are large. There are big institutional differences — in some markets, many micro-caps list; in others, like the U.S., smaller companies are largely shut out.
[3:55] Per Einar Ellefsen: The University of Chicago is known as the home of efficient markets. How did your IPO research fit into that?
[4:03] Jay Ritter: One of my professors, Roger Ibbotson, had written his dissertation on IPOs — looking at both short-term underpricing and long-run performance. His work showed that, although average IPOs underperformed over five years, the results weren’t statistically significant. It was “consistent with market efficiency.”
Fifteen years later, I revisited the question with better data and found that especially smaller companies did underperform. Some efficient-market advocates didn’t like that result. But over time, it became clear that institutional vs. retail focus matters: large institutional deals are priced fairly; retail-heavy small-cap IPOs often fail to live up to the hype.
[6:11] Per Einar Ellefsen: At Amundsen, we spend a lot of time finding the right valuation for IPOs. How important have you found valuation to be for long-term returns?
[6:23] Jay Ritter: Extremely important. Valuations fluctuate over time — during the dot-com bubble, tech and telecom stocks were bid up based on wildly optimistic forecasts. Companies were valued relative to other inflated peers.
Relative valuation protects you from overpaying within a peer group, but not from market-wide mispricing. When markets are exuberant, IPO valuations tend to be too high — and later returns suffer.
[7:53] Per Einar Ellefsen: So if markets are booming, IPOs priced in that context risk underperforming later?
[8:05] Jay Ritter: Exactly. Timing the turning point is hard. Robert Shiller warned about “irrational exuberance” in 1996 — the market then tripled before the 2000 crash. Those who de-risked early missed huge gains, but his warning proved right long-term.
Even if tech valuations were extreme in 2000, a few giants like Amazon and Microsoft carried portfolios to strong long-term returns.
[9:22] Per Einar Ellefsen: You’ve studied many markets globally. Do you see the same pattern — first-day gains, then long-term underperformance?
[9:40] Jay Ritter: Yes. I typically measure three-year post-IPO performance. Every country shows positive average first-day returns, but big variations. In Japan, small-cap IPOs soar; in the U.S., both large and small deals are underpriced modestly.
Generally, large institutional deals perform reasonably well long-term; small retail-oriented ones disappoint. The big long-term winners — Microsoft, Alphabet, Meta — were already profitable before going public.
[11:52] Per Einar Ellefsen: And when you talk about underperformance, is that from the IPO price or from the first-day close?
[12:01] Jay Ritter: I usually measure from the first closing price. Buying at the offer price is rarely possible — most hot IPOs are oversubscribed. Investors who apply for every deal end up with more of the cold ones, which drags down their average performance.
[13:45] Per Einar Ellefsen: How would you define a successful IPO?
[13:54] Jay Ritter: It depends on perspective. Issuers want to sell high; investors want to buy low. Ideally, the stock trades up modestly after listing — signaling healthy demand — but not so much that the company “left money on the table.”
Long-term, success depends on execution. Many hyped IPOs fade when growth proves difficult. Even Apple underperformed for its first 22 years post-IPO before reinventing itself.
[17:05] Per Einar Ellefsen: Agreed. Now, we’ve seen a decline in the number of listed companies globally. What’s driving that?
[17:56] Jay Ritter: The number of IPOs has fallen since the 1990s. Three main motives for going public:
- Raising capital,
- Liquidity for shareholders,
- Currency for acquisitions.
Today, venture capital and private equity satisfy the first two motives. Private markets now offer capital and partial liquidity, so fewer firms need to IPO.
But those private-market funds charge high fees — typically 2–3% a year — so public listings still offer cheaper access to capital.
[21:21] Jay Ritter: There’s no law guaranteeing private funds outperform after fees. In Europe especially, VC returns have been disappointing — success is concentrated in a few outliers.
[23:17] Per Einar Ellefsen: So in essence, public markets give investors cheaper access to growth — paying 10 bps instead of 3% in fees.
[23:58] Jay Ritter: Exactly. And sovereign wealth funds like Norway’s have debated how much to allocate to illiquid private markets. Illiquidity should command a premium — but if too much capital floods in, that premium disappears.
[24:52] Per Einar Ellefsen: Another big trend is the rise of passive investing. Has this affected IPOs?
[25:15] Jay Ritter: Not dramatically — yet. Passive investing has grown enormously, but active money still dominates enough to keep markets efficient. If passive ever reached 95%, inefficiencies would emerge and active managers would profit.
Also, the number of listed U.S. firms has halved since 1997, but mainly small ones. Market cap hasn’t fallen — larger firms now absorb private companies earlier through acquisitions.
[27:48] Per Einar Ellefsen: Right — large listed firms have become acquisition machines. Alphabet buying Wiz for $30 billion is a perfect example — that value accrues to public shareholders rather than through an IPO.
[28:18] Per Einar Ellefsen: Shifting to advice for issuers: what should management teams consider when planning an IPO?
[28:35] Jay Ritter: It depends on the industry. Biotech firms, for example, IPO to fund R&D long before revenue. Most will never reach commercialization, but they can be acquired by larger pharma players with scale advantages.
In contrast, tech and platform businesses have network effects — size and speed matter. Across many sectors, “winner-take-most” dynamics favor getting big fast, sometimes through M&A rather than independence.
[31:24] Per Einar Ellefsen: You’ve said before that “IPOs are bought, not sold.” What do you mean?
[31:32] Jay Ritter: Investors must want the stock. You can’t just announce, “We’re listing tomorrow.” There needs to be a compelling story — a narrative about the company’s future profitability and edge.
That’s why companies hire underwriters and do roadshows — to market that story and build credibility with investors.
[33:16] Per Einar Ellefsen: True. But issuers want long-term shareholders, not flippers. How should they think about their investor mix?
[33:48] Jay Ritter: Investment banks rarely highlight this conflict. Hedge funds — frequent IPO flippers — are often profitable clients, so underwriters reward them with allocations.
Issuers, however, want sticky investors — those who stay engaged post-IPO. They also want some trading liquidity, but not excessive flipping. Retail investors can be useful long-term holders, especially if they’re also customers.
[36:22] Per Einar Ellefsen: Exactly. It’s important that investors remain engaged after the IPO — attending results calls, buying or selling thoughtfully — not just disappearing after day one.
[37:10] Per Einar Ellefsen: Your research shows that IPOs typically float only 15–25% of shares. How should companies decide how much to sell?
[37:27] Jay Ritter: Enough to ensure liquidity, especially for institutions — they need meaningful positions or none at all. Retail holders tend to keep what they get.
Float size should reflect capital needs. Selling too much raises idle cash and risks waste. Venture capitalists call this staged financing — raise what you can deploy efficiently, then reassess.
[39:23] Per Einar Ellefsen: In the U.S., we’ve seen floats as low as 5–10%. Is that healthy?
[39:35] Jay Ritter: It depends. Some countries impose minimum floats; the U.S. doesn’t. Institutional investors demand liquidity, so often existing shareholders sell some stock to lift the float.
For mature, buyout-backed firms, that’s fine. For early-stage startups, insiders selling heavily is a bad signal.
[41:22] Per Einar Ellefsen: Let’s talk innovation. The IPO process hasn’t changed much, except for SPACs and direct listings. What’s your take?
[41:52] Jay Ritter: Most IPOs still use book-building — underwriters set a price range, gauge demand, and allocate shares at their discretion. That system rewards favored clients and often leads to underpricing.
Auctions (like Google’s 2004 IPO) and direct listings reduce that bias, but never became mainstream because underwriters prefer the economics of book-building.
[44:22] Jay Ritter: SPACs, meanwhile, proved disastrous — most merged firms fell over 60% post-listing. Redemptions drained capital, leaving little cash raised. It’s become a niche market with few quality issuers.
[46:33] Per Einar Ellefsen: Based on your experience, how would you improve the IPO process?
[46:41] Jay Ritter: I’d favor auctions and direct listings — more transparent, less costly, and less underpricing. Traditional book-building benefits underwriters more than issuers. It’s too expensive, and change has been slow because big banks like the system.
[47:29] Per Einar Ellefsen: Thank you very much, Jay, for sharing your insights and decades of research.
For listeners, Jay’s website is a treasure trove of IPO statistics and historical data — a must-see for anyone doing quantitative work on IPOs.
[47:45] Jay Ritter: Thank you. It’s been my pleasure.
[47:47] Per Einar Ellefsen: Thank you for listening to IPO Stories.
In future episodes, we’ll host CEOs, CFOs, advisors, and other participants in the IPO process to learn from their experience — like Professor Jay Ritter today.
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If you have questions about the IPO process you’d like us to address with future guests, please contact us at contact@ipostories.com and follow Amundsen Investment Management on LinkedIn.
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