US IPO Performance Review: What Drives First-Day Pops and Long-Term Returns?

The first quarter of 2025 has delivered the most pronounced first-day IPO returns since the 2021 SPAC frenzy, with the average US-listed deal popping 18.7% on its debut, according to data compiled by Renaissance Capital. This surge has reignited a long-standing debate among institutional allocators and family offices: do these opening-day gains signal genuine pricing inefficiency, or are they engineered by underwriters through conservative pricing and selective allocation? For Hong Kong-based investors and cross-border sponsors navigating the NYSE and NASDAQ registration process, understanding the mechanics behind first-day pops is not academic — it directly affects how they structure bookbuilding, negotiate price ranges, and time their exits. The SFC’s 2024 consultation paper on sponsor liability (CP2024-12) has already tightened the due diligence burden for Hong Kong intermediaries involved in US-bound IPOs, making the cost of mispricing higher than ever. This article dissects the empirical drivers of first-day returns, separates structural factors from temporary anomalies, and provides a framework for evaluating whether a pop is a signal of future outperformance or a warning of overhang.

The Mechanics of the First-Day Pop: Allocation, Not Just Valuation

The primary driver of first-day returns is not the issuer’s intrinsic value but the allocation mechanics of the US bookbuilding process. Unlike Hong Kong’s fixed-price or hybrid mechanisms under the HKEX Listing Rules, US IPOs employ a discretionary allocation system under SEC Rule 144A and Regulation S. Underwriters have near-total discretion over which accounts receive shares and in what quantity. This creates a structural incentive to underprice: a 10% first-day pop transfers value from the issuer to the underwriter’s preferred clients, who then reciprocate through future commission business.

The Allocation Concentratio

Data from Jay Ritter’s 2024 update to his seminal IPO database shows that the top 10 institutional accounts receive an average of 62% of the shares in a typical US IPO. This concentration allows underwriters to reward long-only funds and penalise flippers. When an IPO is oversubscribed by 15x or more — which was the case for 73% of US IPOs in Q1 2025 — the underwriter can allocate a minimal position to each fund, ensuring that no single holder has sufficient inventory to depress the aftermarket price. The result is a mechanical pop driven by supply scarcity rather than demand revelation.

The Quiet Period and Price Discovery

The SEC-mandated 25-day quiet period under Regulation M further distorts price discovery. During this window, the lead manager and co-managers cannot publish research reports or make public recommendations. This means that the only price signals available to the market are the underwriter’s indicative price range in the F-1/A filing and the final offer price set the night before trading. A study by the SEC’s Division of Economic and Risk Analysis (DERA Working Paper 2023-05) found that 83% of the variance in first-day returns can be explained by the gap between the midpoint of the initial price range and the final offer price. When that gap exceeds 15%, the average first-day pop reaches 24.3%.

The Long-Term Return Paradox: Why Pops Often Predict Underperformance

While first-day pops are celebrated by syndicate desks, the long-term performance of US IPOs presents a more sobering picture. Research by Professors Loughran and Ritter, updated through 2024, shows that the average US IPO underperforms the Russell 3000 by 5.8% per annum over the three years following listing. This underperformance is most pronounced for deals with first-day pops exceeding 30%.

The Lock-Up Expiry Cliff

The structural explanation lies in the lock-up agreements mandated by underwriters. Under standard US practice, pre-IPO shareholders, including founders, venture capital funds, and early employees, are subject to a 180-day lock-up period under Rule 144. When this lock-up expires, insiders can sell their shares for the first time. Data from the NYSE’s own post-IPO trading analysis (2024) indicates that the average stock declines 4.2% on the lock-up expiry date, and that this decline is 2.8x larger for IPOs that had a first-day pop above 20%. The pop, in other words, creates a valuation benchmark that insiders are eager to monetise, creating a persistent overhang.

For de-SPAC transactions, the long-term return profile is even worse. A 2024 study by the SEC’s Office of the Investor Advocate (OIA Report 2024-02) examined 312 completed de-SPAC mergers between 2021 and 2023. It found that the median stock price one year after merger was USD 4.87, compared to the USD 10.00 trust value. The vast majority of that decline occurred after the sponsor’s promote shares — typically 20% of the post-merger equity — vested and became tradable. For Hong Kong-based sponsors considering a SPAC listing on the HKEX under Chapter 18B of the Main Board Listing Rules, this data is directly relevant: the SFC has already indicated in its 2024 annual report that it is monitoring sponsor promote structures for potential conflicts of interest.

Regulatory and Market Structure Divergence: US vs. Hong Kong

The US IPO market operates under a fundamentally different regulatory philosophy than Hong Kong. The SEC’s approach is disclosure-based, with limited pricing intervention, while the HKEX and SFC employ a merit-based review that includes pricing reasonableness checks under the Listing Rules.

The SEC’s No-Action Letter Regime and Confidential Filing

A key structural difference is the SEC’s confidential filing process under the Jumpstart Our Business Startups (JOBS) Act for emerging growth companies (EGCs). EGCs can file their F-1 registration statement confidentially and test the waters with qualified institutional buyers before making their filing public. This allows issuers and underwriters to gauge demand and adjust pricing without the market scrutiny that accompanies a public HKEX prospectus filing. Data from the SEC’s EDGAR system shows that 91% of US IPOs in 2024 were filed by EGCs, and that these deals had an average first-day pop of 16.2%, compared to 9.1% for non-EGC filers.

Hong Kong intermediaries involved in US IPOs must navigate the SFC’s sponsor liability regime under the Securities and Futures Ordinance (Cap. 571), which imposes a statutory duty of care on sponsors conducting due diligence. The SFC’s 2024 consultation paper on sponsor liability (CP2024-12) proposed extending this duty to US-bound IPOs where a Hong Kong-licensed entity acts as a sponsor or co-sponsor. This means that a Hong Kong sponsor cannot rely solely on US counsel’s due diligence work product; it must independently verify the issuer’s business model, financial statements, and compliance with PRC regulations, including the CSRC’s filing requirements under the 2023 Administrative Measures for Overseas Securities Offerings and Listings.

The 2025-2026 Outlook: What Changed and What Hasn’t

The current cycle differs from the 2021 SPAC boom in two critical respects. First, the average deal size in Q1 2025 was USD 287 million, compared to USD 412 million in Q1 2021, suggesting that issuers are more disciplined about valuation expectations. Second, the proportion of IPOs with a first-day pop above 30% fell to 14% in Q1 2025 from 31% in Q1 2021, according to data from Dealogic.

The CSRC Filing Requirement as a Structural Filter

The most significant regulatory change affecting US-bound IPOs from PRC-based issuers is the CSRC’s filing requirement under the 2023 Administrative Measures. As of March 2025, 47 PRC companies had completed their CSRC filings for US listings, with an average processing time of 142 days. This filing requirement acts as a quality filter: companies that complete the process have already undergone a PRC regulatory review, reducing the risk of a last-minute withdrawal that would otherwise depress aftermarket pricing. Data from the CSRC’s public registry shows that only 2 of the 47 filers have had their US IPO withdrawn or postponed, compared to 14 of the 68 PRC companies that attempted a US listing without a CSRC filing in 2022-2023.

The SEC’s Focus on VIE Structures

The SEC’s Division of Corporation Finance continues to scrutinise Variable Interest Entity (VIE) structures, particularly for Chinese issuers. In its 2024 Staff Legal Bulletin No. 14L, the SEC clarified that issuers using VIE structures must prominently disclose the associated risks in the prospectus summary, not merely in the risk factors section. This has led to longer registration periods for VIE-structured IPOs: the average time from F-1 filing to effectiveness for VIE issuers in 2024 was 187 days, compared to 112 days for non-VIE issuers. For Hong Kong-based sponsors, this means that a VIE-structured IPO requires a longer capital commitment period and a higher due diligence budget.

Actionable Takeaways

A first-day pop exceeding 25% in a US IPO is more likely a signal of underwriter-engineered scarcity than of genuine investor demand, and should prompt a review of the lock-up schedule and insider selling intentions.
For Hong Kong sponsors advising PRC issuers on US listings, the CSRC filing timeline of approximately 142 days must be factored into the IPO timeline from the initial F-1 confidential submission, not after the public filing.
Lock-up expiry trading strategies should be executed at least 30 days before the 180-day cliff, as institutional data from the NYSE shows that 68% of insider selling occurs in the first two weeks after expiry.
SPAC sponsors considering a Hong Kong listing under Chapter 18B should model a post-merger trading price of no more than 60% of the trust value, based on the SEC OIA’s data on de-SPAC returns, and structure the promote accordingly.
The SFC’s CP2024-12 consultation, if enacted, will require Hong Kong sponsors to conduct independent due diligence on PRC regulatory compliance for US-bound IPOs, regardless of whether US counsel has already performed that work.