Alastair Marsden

Shareholder wealth effects of rights issues: Evidence from the New Zealand capital market

Abstract This study examines security price reaction to the announcement of rights issues by New Zealand firms between 1976 and 1994. Over this period, price reaction to rights issue announcements in New Zealand was significantly negative. The price reaction to the announcement was more negative for underwritten compared to non-underwritten rights issues. The evidence suggests non-underwritten rights issues have higher expected participation in the issue by existing shareholders. The results are broadly consistent with the adverse selection cost arguments of Eckbo and Masulis [Eckbo, B.E., Masulis, R.W., 1992. Adverse selection and the rights offer paradox. Journal of Financial Economics 32, 293–332] and help further explain the rights offer paradox whereby firms in a small capital market, like New Zealand, continue to rely on rights issues to raise new equity. Price reaction to the rights issue announcement was also more negative the larger the relative issue size. This result supports both the adverse selection cost and information asymmetry arguments of Krasker [Krasker, W.S., 1986. Stock price movements in response to stock issues under asymmetric information. Journal of Finance 41, 93–105] and the signaling framework hypothesis of Miller and Rock [Miller, M.H., Rock, K., 1985. Dividend policy under asymmetric information, Journal of Finance 40, 1031–1051].

Does Idiosyncratic Volatility Matter? New Zealand Evidence

Standard asset pricing models ignore idiosyncratic risk. In this study, we examine if idiosyncratic or unique risk affects returns for New Zealand stocks using the factor portfolio mimicking approach of Fama and French (1993, 1996). We find evidence of a negative relationship between firm size and a stocks idiosyncratic volatility. We also find that high idiosyncratic volatility firms have high betas and generate low earnings on book equity.

Small Firm Effect, Liquidity and Security Returns Australian Evidence

Standard asset pricing models ignore the costs of liquidity. In this study we advance the ongoing debate on empirical asset pricing and test if liquidity costs (as proxied by turnover rate, turnover ratio and bid-ask spread) affect stock returns for Australian stocks. Our tests use the factor portfolio mimicking approach of Fama and French (1993, 1996). We find small and less liquid firms generate positive risk premia after controlling for market returns and firm size. We find no evidence of any seasonal effects that can explain our multifactor asset pricing model findings. In summary, our study provides support for a broader asset pricing model with multiple risk factors.

An empirical analysis of the NZX's price query system

Purpose – The purpose of this paper is to examine the proposition that unexplained price and volume movements detected by the New Zealand Exchanges (“NZX”) surveillance staff reflect speculative trading.Design/methodology/approach – The paper examines a sample of 98 price queries issued by the NZX between 1996 and 2004 where the company responded with a “no news” announcement to the NZX query. The sample is partitioned between queries of price increases and queries of price decreases. A market model is employed to estimate abnormal returns over the event window period [−30, 30] where day 0 is the date the price query is issued.Findings – The paper finds evidence of large abnormal returns in the immediate pre‐query period but only a partial reversal in the post‐query period following the “no news” announcements.Research limitations/implications – The absence of a full reversal of the pre‐query abnormal return is interpreted as evidence that prices are being set by informed traders rather than by uninforme...

The introduction of broker anonymity on the New Zealand Exchange

Purpose – The purpose of this paper is to examine the impact of the introduction of anonymous trading on the liquidity of New Zealand Stock Exchange (NZX)‐listed stocks.Design/methodology/approach – The paper examines the impact of the switch to anonymous trading on effective spreads and adverse selection costs using both univariate and multivariate approaches and data spanning a 240‐day event window period. The paper also compares the NZXs share of trading in cross‐listed stocks before and after the switch to anonymous trading to determine if the change in market architecture improved the NZXs competitiveness vis‐a‐vis the Australian Stock Exchange (ASX).Findings – The paper finds that effective spreads and adverse selection costs increased following the switch to anonymous trading across the broad range of NZX50 stocks, consistent with an increase in information risk in the post‐event period. However, the paper also finds that the switch to anonymous trading improved the NZXs market share in trading ...

Market reaction to the introduction of a foreign investor tax credit regime in New Zealand

Abstract This study examines the stock market reaction to the announcement of a new foreign investor dividend tax credit system in New Zealand. The new tax system provides foreign investors, who own less than a 10% stake in a New Zealand company, with supplementary dividends. These additional dividend payments substantially offset any liability for New Zealand non-resident withholding tax. The new tax regime effectively increased the amount of after-tax cash dividends received by foreign shareholders of New Zealand companies. The empirical results indicate that significant and positive abnormal returns were concentrated predominantly on companies with fully imputed high dividend yields and high corporate tax rates. The evidence is consistent with the hypothesis that tax policy affects stock market behavior.

Venture capital-backed and commitments test entity initial public offerings on the ASX

This paper examines initial returns to venture capital (VC) backed and non‐VC‐backed IPO companies on the Australian Securities Exchange (ASX). We find support for the theoretical predictions of Rossetto (2008), by providing empirical evidence that VC‐backed CTE IPOs exhibit greater wealth losses to pre‐IPO investors compared to non‐VC‐backed CTE IPOs during hot issue markets. We also find that greater retained ownership increases IPO underpricing. In the subsample of IPOs with below the median level of retained ownership IPOs, VC‐backed CTE IPOs and VC‐backed, non‐CTE IPOs have significantly higher levels of underpricing and wealth loss compared to non‐VC‐backed, non‐CTE IPOs.

New Zealand venture capital funds and access to new financing: an exploratory study

Purpose – This paper aims to explore the challenges the Venture Capital (VC) funds industry in New Zealand (NZ) faces when sourcing new capital. In NZ, there is a significant gap currently for companies seeking VC funding of between

How Mature is the AUD/NZD Market?

2 and

Derivatives Use, Corporate Governance, and Legislative Change: An Empirical Analysis of New Zealand Listed Companies

10 million to commercialise new products and ideas. Also, the estimated financing needs of the next generation of early stage NZ enterprises are around