Frank J. Finn

The performance of unseasoned new equity issues-cum-stock exchange listings in Australia☆

The market behaviour of unseasoned new issues of common stock at the time of initial listing and during the period following initial listing on the Sydney Stock Exchange is investigated. The results indicate large and widespread initial returns to the new issue-cum-listing process. The average aftermarket performance was negative but was not statistically significant. We suggest that the joint process of initial issue-cum-listing in Australia, the listing requirements of the Australian Associated Stock Exchanges and the vesting of allocation rights to the issue in the broker, together with barriers to entry to stockbroking in Australia, provided the market structure which facilitated underpricing of the new issues.

The effect of block transactions on share prices: Australian evidence

Abstract The Sydney Stock Exchange provides an unusually clean test of whether large transactions affect share prices. It is ‘small’ and trading is ‘thin’, so our sample of block trades ranges in size from one to sixty days of normal trading volume. Sydney is a non-dealer auction market and we can identify and eliminate all purchases and sales by brokers, thus focusing on substitution effects. The data are consistent with the perfect substitution hypothesis, without ‘price pressure’. Block size distributions conform closely to the log-normal distribution and Kraus/Stoll regressions of security returns on untransformed block size are misspecified.

Dividend Changes, Earnings Reports, And Share Prices: Some Australian Findings

Australian companies typically announce profit figures and dividend payouts at the same time. During the 60s and early 70s, profit and dividend changes were positively correlated, and were associated with significant share price changes, after abstracting from market effects. When profit and dividend reports gave conflicting signals, share prices tended to decline.

Electronic Commerce Investments, the Resource-Based View of the Firm,and Firm Market Value

Firms have embraced electronic commerce as a means of doing business, either because they see it as a way to improve efficiency, grow market share, expand into new markets, or because they view it as essential for survival. Recent research in the United States provides some evidence that the market does value investments in electronic commerce. Following research that suggests that, in certain circumstances, the market values noninnovative investments as well as innovative investments in new products, we partition electronic commerce investment project announcements into innovative and noninnovative to determine whether there are excess returns associated with these types of announcements. Apart from our overall results being consistent with the United States findings that the market values investments in electronic commerce projects, we also find that noninnovative investments are perceived as more valuable to the firm than innovative investments. On average, the market expects innovative investments to earn a return commensurate with their risk. We conclude that innovative electronic commerce projects are most likely seen by the capital market as easily replicable, and consequently have little, if any, competitive advantage period. On the other hand, we conclude from the noninnovative investment results that these types of investments are seen as being compatible with a firms assets-in-place, in particular, its information technology capabilities, a view consistent with the resource-based view of the firm.

Announcement effects and market efficiency in a thin market: An empirical application to the Singapore equity market

Studies of share price responses to public announcements have assumed that there is no serious thinness in trading. This paper reports the findings of a study of price responses of thinly-traded shares in the Singapore equity market. With appropriate methodological refinements for thinness in trading, the announcement effects of earnings, dividends and capitalisation changes are studied. The results suggest that there are statistically significant abnormal returns during the months up to and including the month of announcement. With some minor exceptions, there appears to be no significant abnormal returns during the months after the announcements: semi-strong form efficiency is thus observed. These results are consistent with prior findings in the developed capital markets.

The Determinants of Debt Maturity in Australian Firms

We examine the determinants of debt maturity in the Australian capital market with the Top 400 firms listed on the Australian Securities Exchange for the period 1989–2006. We find that Australian firms not only exhibit a positive leverage–maturity relationship but also use short-term debt to signal their high quality to the market. Our results are robust to different estimation methods that control for endogeneity and error-dependence. We also find that ignoring the interaction between leverage and maturity can lead to erroneous conclusions about the support for the matching principle, the agency costs hypothesis and the transaction costs hypothesis.

Dividends and the Value of the Firm: Evidence from the Australian Equity Market

A version of the Black and Scholes dividend yield experiment is conducted, with a view to determining whether there exists a preference for dividends versus capital gains. Using data from the 1960s the experiment reveals a relatively large relationship between dividend yields and risk-adjusted share returns, in the year subsequent to the payment of the dividend yields. The observed dividend effect is too large to be explained by major hypotheses concerning market-wide preferences for or against dividends.

Australian divestiture activity: An examination of gains to sell-off announcements

This study examines the source of gains associated with Australian divestiture activity, defined as a voluntary modification of the firms productive assets by a sell-off of a complete operating division or wholly-owned subsidiary of the divesting firm The sell-off announcement produces positive average abnormal returns of 1.15% over the two-day announcement period. We conclude that the gains arise predominantly from divestitures that have a strategic focus as demonstrated by, first, the divested unit is unrelated to the firms core activities (a strategic divestiture), second, the significance of the strategic variable in explaining the positive market reaction in regression analysis, and third, the finding of more significant results where the intended use of proceeds of the sell-off is for strategic purposes.

Intra-Week Regularities in Security Returns: Further Australian Evidence

This paper provides further evidence on short-term seasonals in returns on equity and fixed interest securities and futures on fixed interest securities in the Australian market. The significant result is that daily seasonals are found infixed interest securities and are qualitatively the same as for equity returns, high Thursday and low Tuesday returns. But the interest rate seasonal does not appear to explain the equity seasonal. Further, while no seasonal was evident in returns on futures on fixed interest securities, the futures market showed a seasonal in daily variances of returns.

The Ex Ante Efficiency of Australian Stock Market Benchmarks

This paper tests the ex ante efficiency of Australian benchmark portfolios over the period 1980–1996. Indices commonly used as performance evaluation benchmarks were found to be ex ante inefficient when unrestricted short selling was allowed. However, when short selling was restricted, the ex ante efficiency of the benchmarks could not be rejected. Further, the mining/resource and property sectors were not performance-enhancing additions to investment in the industrial sector over the period examined. This has important implications for the performance evaluation of managed investment funds.