Sian Owen

Divestitures, Wealth Effects and Corporate Governance

We analyse the market reaction to divestiture decisions and determine the impact of corporate governance practices. We find the market reaction is significant and can be determined using internal governance mechanisms. We evaluate the determinants of the decision to sell using a control sample of firms displaying characteristics often associated with divestitures indicating that these firms may face the same incentives to divest but elect not to restructure in this manner. Our results suggest that a combination of strong internal and external governance may force managers to act in a manner that is incompatible with their personal desires.

The pricing and impact of rights issues of equity in Australia

We investigate abnormal returns resulting from the announcement of a rights issue in Australia and are the first study outside the United States and the United Kingdom to examine the pricing of rights issues and the determinants of that pricing. Rights issues generate a significantly negative abnormal return and, on average, are priced at a discount. The determinants of the announcement effect are analysed using a two-stage approach controlling for the endogeneity of the price discount. We first estimate the predicted discount and then include it as an independent variable in the announcement effect regression. The discount is positively related to the offer size and negatively related to underwriter quality, supporting underwriter certification models. We also include variables that have not been tested in any market, such as shareholder concentration which is negatively related to the discount implying that firms with higher shareholder concentration do not offer a significant discount as their shareholders wish to maintain their percentage holding in the firm. Further, the abnormal returns have a negative relationship with the predicted price discount, and a positive relationship with the use of proceeds. Finally, announcements made by resource firms generate larger negative reactions than other issuers.

Corporate governance and the long-run performance of firms issuing seasoned equity: An Australian study

Corporate governance has been propelled to the forefront of contemporary business thinking by a string of high profile corporate collapses and dramatic regulatory responses in both the United States and Australia. A particularly extensive body of research has emerged surrounding the relationship between corporate governance and firm performance. We provide the first in-depth examination of this issue in an Australian context, making use of our comprehensive self-constructed governance database. We take the novel approach of combining the governance literature with evidence surrounding the long-term underperformance of firms issuing seasoned equity. Thus, we examine whether good corporate governance mitigates post-issue underperformance. Utilising a broad sample of Australian seasoned equity offerings, we demonstrate that issuing firms underperform a variety of benchmarks over the long term, confirming similar findings in the existing literature. We also find evidence of a positive relationship between the quality of a firm’s corporate governance and its relative post-issue performance. Our findings are robust to a variety of estimation methods and econometric specifications, and have far-reaching implications for researchers, regulators, firms and investors alike.

An Alternative Measure of Corporate Governance Using Discrete Principal Component Analysis

How is corporate governance to be measured? Much past research has focused on forming an index but this approach ignores the correlations between the variables forming the index and may also carry redundant variables. Principal Component Analysis (PCA) is a possible solution to these issues by distilling components from a Pearson correlation matrix. However, the estimated correlation matrix may be biased when discrete governance variables are involved. We use an alternative method known as discrete Principal Component Analysis which involves applying PCA to a modified correlation matrix which takes into account the underlying distribution of the governance variables. Using a sample of 760 firms in 2002, we find mixed support for prior research. Larger boards are found to negatively impact future ROA of firms whilst the proportion of old directors on the board has a negative relation with abnormal accruals and abnormal returns.

Asset legitimacy in experimental asset markets

We investigate whether prices in experimental asset markets behave differently when participants are required to trade with earned wealth compared to unearned wealth. Unearned endowed wealth, the standard practice in experimental studies of asset price bubbles, may elicit greater than normal risk-seeking behavior. We test for this altered behavior by requiring some participants to earn their initial market allocation. We do not find a significant difference in the frequency, severity, or duration of mispricing between earned and unearned endowments. Our results confirm the validity of the existing methodologies used in the study of bubbles in experimental settings.

Evaluating the market reaction to UK divestitures

Purpose – To determine whether the abnormal returns accruing to UK companies undertaking a divestiture are different when the unit sold is in the UK or elsewhere and to specifically hypothesize that returns generated by a domestic sale will be higher than those resulting from an overseas sale.Design/methodology/approach – Using a sample of 668 divestitures reported on securities data corporation (SDC) Platinum database, and share price data from DataStream, both abnormal returns and cumulative abnormal returns (CARs) are calculated around the announcement date using the market model.Findings – That the announcement of a divestiture generates positive abnormal returns for shareholders. Further, that the announcement of a UK divestiture generates a significantly larger positive market reaction than the announcement of an overseas divestiture. For the divestiture of units located outside the UK it is found that the largest CARs are generated when the buying firm is based in the UK.Originality/value – Here th...

The impact of venture capital/private equity investment on the performance of IPOs in Australia

The Handbook of Research on IPOs provides a comprehensive review of the emerging trends and directions in the global initial public offerings (IPO) markets. The empirical evidence included in the book covers Europe, the US and the Far East, and presents a truly global perspective of IPO markets around the world and at the different stages of the entire IPO process.