Janice C. Y. How

Initial and Long-Run Performance of Mining IPOs in Australia

This paper examines the initial and long-run performance of 130 Australian mining IPOs issued from 1979 to 1990. The results show an average underpricing of 107.18%, significantly higher than that previously documented for industrial firms. The time lapse between prospectus registration and listing, and the state of the market when the IPO is issued are the main explanatory variables for the observed underpricing. Contrary to the existing evidence, mining IPOs in Australia, on average, do not appear to significantly underperform the market in the long-run. The results show that delay in listing is significantly related to the long-run performance, with some evidence of a curvilinear relationship between underpricing and the one-year and two-year share returns.

Fractional ownership and underpricing: signals of IPO firm value?

Abstract This paper examines whether fractional ownership and underpricing serve as signals of firm value in the Australian new issues market. While international studies have provided emperical support for the signaling hypothesis, there is a paucity of Australian evidence in this area. Instead, empirical tests of hypotheses proposed as explanations of the underpricing phenomenon have featured prominently in the Australian studies. This paper finds evidence of a positive relationship between firm value and fractional ownership. Our results also show that although the positive relationship between fractional ownership and firm value is robust, irrespective of whether market volatily and industry effects have been controlled for, the assumption of linearity of the relationship may not be appropriate. The relationship between underpricing and firm value is, however, ambiguous.

The Pricing of Underwriting Services in the Australian Capital Market

Synergistic insecticidal combinations of esters of certain cyclopropanecarboxylic acids, e.g. pyrethrins, allethrin, and related compounds, with mono(alkyl and alkenyl) mono- omega -alkynyl aryl- and aralkylphosphonates are described. The preparation and properties of representative members of this new class of synergistic phosphonates are described, and test results of their synergistic combinations with representative cyclopropanecarboxylates are reported.

Does size matter? A genetic programming approach to technical trading

Introduced in 1970 by Eugene Fama, the Efficient Market Hypothesis (EMH) has become a central proposition in the finance literature. If EMH holds, any trading strategy that relies on the assumption that past prices contain information that can be used to consistently earn abnormal profits should be fallacious. The mere fact that technical analysis, or the use of past prices to infer private information, is a common and seemingly lucrative practice among investment professionals has inspired many researchers to investigate the profitability of technical trading rules. Numerous performance studies have been conducted over the years, with widely varying results. Much of this variation in results can be attributed to differences in testing procedures (see Park and Irwin 2004 for an extensive review of this literature).x It has been contended that small-cap stocks are priced in a less efficient manner than large-cap stocks (Blume et al. 1994), so that small-cap pricing errors can more readily be exploited. This is linked to the fact that such stocks are less widely held by portfolio managers and do not receive the same level of attention by financial analysts. The lower level of research being conducted on small-cap stocks would suggest that they are relatively more susceptible to information asymmetry, experiencing more gradual price adjustments as the news is more slowly assimilated, relative to large-cap stocks.

Dividend Initiations and Long Run IPO Performance

Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long-run performance of IPO firms that initiated a dividend with that of similarly matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow.

Taking a leap of faith: are investors left short changed?

This chapter examines the compliance and performance of an international sample of faith-based ethical funds which screen their investment not only on risk and return but also on compliance with Islamic law – Islamic equity funds (IEFs). Using a set of stringent shariah screens similar to those of Morgan Stanley Capital International (MSCI) Islamic Index, we find less than one-third of the equity holdings of IEFs are shariah compliant. While most of the fund holdings pass the business screens, only about 38 per cent pass the total debt to total assets ratio screen. This finding suggests that, in order to overcome a significant reduction in the investment opportunity, shariah principles are compromised, with IEFs adopting lax screening rules in an attempt to achieve financial performance. Our matched firm approach shows that shariah screening reduces investment performance by an average of 0.04 per cent per month if benchmarked against matched conventional funds – this is a relatively small price to pay for religious faith. Cross-sectional regressions show an inverse relationship between shariah compliance and fund performance: every 1 percentage point increase in total compliance decreases fund performance by 0.01 per cent per month. However, shariah compliance fails to explain relative performance of the funds when matched with conventional funds.

Corporate governance and private placement issuance in Australia

In this study, we examine the effectiveness of corporate governance in mitigating dilution in the economic and voting interests of existing nonparticipating (retail) shareholders in private placements. Based on a sample of 2420 private placements in Australia from 2001 to 2012, we find support for this proposition through the influence of corporate governance on pricing negotiation and firms’ choice of issuing method in private placements. Specifically, firms with better corporate governance offer private placements with a smaller discount, and are more likely to include a share purchase plan, which protects nonparticipating shareholders from ownership dilution in the placement.

Information asymmetry surrounding earnings and dividend announcements: An intra-day analysis

This paper uses high frequency data to evaluate whether information asymmetry in the market is reduced subsequent to corporate earnings and dividend announcements. Changes in the level of information asymmetry due to the announcements are proxied by the rate of change in trading volume, bid-ask spread, cumulative abnormal returns, and order imbalance. Our results show that the release of earnings and dividend reduces information asymmetry, proxied by bid-ask spread and order imbalance. There is no significant change in trading volume. The significant change in cumulative abnormal returns suggests that the announcements have information content. Cross-sectional analysis shows that forecast errors and the timing of the announcements are somewhat related to the change in information asymmetry. Some interaction effects of earnings and dividend on the change in information asymmetry are documented.

An analysis of the pricing processes of Australian unit trust IPOs

Abstract This paper examines the pricing patterns of 36 Australian unit trust IPOs issued during the period 1984–1988. Unit trust IPOs, on average, are found to be underpriced but not to the same degree as IPOs of ordinary shares. The results appear to be sensitive to the year of offering and trust type. There is some evidence showing that the winners curse problem may not be prevalent in the Australian IPO trust market. This may explain why trust IPOs are not subject to the same systematic and significant underpricing as IPOs of ordinary shares, a widely documented phenomenon in the literature. Consistent with previous studies, we also find the standard deviation of the aftermarket returns, a proxy for ex ante uncertainty, has a significant impact on the pricing of unit trust IPOs.

Monitoring Style Drift: Evidence from Equity Funds

This paper provides the first evidence that the quality of fund stewardship matters to fund style drift. Based on 435 equity funds from 2008 to 2011, we find a negative association between overall stewardship and the holding-based measure of style consistency and style dispersion in the size dimension. In comparison, stewardship component measures, including fees, regulatory history, manager compensation, manager ownership, board quality, and corporate culture are more significant in explaining the various dimensions of style drift we explored. Our analysis shows that managerial compensation and ownership have opposing effects on style drift and should therefore be treated separately in tests of fund stewardship.