Canadian Journal of Administrative Sciences, Apr 8, 2009
This paper investigates aftermarket volatility and underpricing of the Initial Public Offerings (... more This paper investigates aftermarket volatility and underpricing of the Initial Public Offerings (IPOs) listed on the Toronto Stock Exchange during the period 1990–1999. Our results indicate that aftermarket volatility has increased significantly but the average degree of underpricing has not increased. The decomposition of the aggregate aftermarket volatility in market, industry, and firm‐specific components reveals that the increase is mostly attributable to firm‐specific risk. We also find that the volatility of IPOs is smaller than that of comparable (matched) seasoned stocks. Although our results show an overall positive relationship between IPO underpricing and aftermarket volatility, we find that this relationship has become considerably weaker in recent years.RésuméCet article étudie la volatilité après‐bourse et la sousévaluation des titres suite à un appel public à l'épargne (APE) à la bourse de Toronto durant la période 1990–1999. Nos résultats indiquent que la volatilité aprèsbourse a augmenté de manière significative, mais que le niveau moyen de la sous‐évaluation quant à lui est resté intact. La décomposition de la volatilité totale aprèsbourse selon ses composantes de marché, d'industrie et celle propre aux firmes, indique que l'augmentation de la volatilité peut être attribuée aux risques spécifiques aux firmes. Nous trouvons aussi que la volatilité des APE est plus faible que celle des émissions d'actions comparables déjà listées. Bien que nos résultats montrent une relation positive globale entre la sous‐évaluation des APE et la volatilité subséquente à l'émission, nous estimons que cette relation s'est considérablement affaiblie au cours des dernières années.
An examination of initial public offerings (IPOs) that went public in Canada between 1971 and 198... more An examination of initial public offerings (IPOs) that went public in Canada between 1971 and 1983 and subsequently traded on the Toronto Stock Exchange indicates that Canadian IPOs, like their U.S. counterparts, are on average underpriced. The average degree of underpricing ranged from 9 to 11.5 per cent, concentrated in the first three days from issuance. The level of underpricing varied significantly across firms, however. Approximately 40 per cent of the sample issues were actually overpriced. Tests indicate that underpricing was significantly related to three variables-trading volume, business sector of the firm and the use to which funds from the offering were put. Underpricing was greater, the thinner the trading in the security (as measured by the number of days traded divided by the number of days listed over the first 200 trading days). IPO underpricing was more pronounced for firms in the industrial sector than for firms in other sectors of the economy. Issues raising funds for pure investment purposes (e.g., acquisition, exploration and research) experienced more underpricing than issues raising funds for other purposes. The evidence suggests that underpricing was not related to issuespecific measures of risk such as variance or beta.
At the end of 1983, up to 10 per cent of the aggregate value of the Toronto Stock Exchange was ac... more At the end of 1983, up to 10 per cent of the aggregate value of the Toronto Stock Exchange was accounted for by shares with restricted voting privileges. In most cases, these shares were distributed to holders of the original common stock. The approach is similar to a stock split, where the firm exchanges, say, one restricted voting (RV) share and one superior voting (SV) share for each original common. Analysis of the cumulated, cross-sectional differences between the returns observed over such a stock-split period and model-generated expected returns reveals the price effects of RV share issuance. There are no significant effects prior to a firm's announcement of intent to issue RV shares and only weak evidence of a price decline in conjunction with the announcement. A significant fraction of firms exhibit declining share prices in conjunction with the actual issuance of RV shares, however. Furthermore, the decline is traceable to a decrease in RV share prices, which precedes an increase in SV share prices by about one day. In effect, holders of SV shares enjoy a relative positive premium of roughly 7 per cent. The evidence suggests that investors are likely to "vote with their feet "-to choose alternative investments rather than hold shares with restricted voting privileges. It is thus particularly important that minority shareholders be given a say in a firm 's decision to issue such shares.
AbstractThirty years of Canadian evidence has been used to shed light on the motivation and impli... more AbstractThirty years of Canadian evidence has been used to shed light on the motivation and implications of stock splits, stock dividends, and reverse splits. The maximum 5-year period before and after the “event” month was focused and the changes in stock return, earnings per share (EPS), beta, trading volume, number of transactions, price to earning ratio (P/E), valuation, and corporate governance characteristics were examined. Strong information signaling effect of stock splits was found, as well as persistent superior performance and a favorable change in relative valuation are observed in the post-stock split period. The total trading volume increases after stock split ex-date while the trading volume per transaction decreases considerably, signifying a possible change in investor composition. However, no accompanying change was found in the governance environment. The overall evidence supports the signaling hypothesis as well as the optimum price and the relative valuation hypotheses. Stock dividend and reverse stock split firms have significantly weaker stock performance and operating performance than stock split firms. The negative trend does not improve in a long-term after the ex-date.
Journal of small business and entrepreneurship, 1988
... to thank D. Jardine for expert research assistance, C. Georgas and A. Riding for helpful comm... more ... to thank D. Jardine for expert research assistance, C. Georgas and A. Riding for helpful comments and D. Ryerson for editorial ... active bualnau, primarily In Canada with aasots (including tioM of tie aitodaiad corporations)< $35 million (2) Prescribed Ventura Capital Coiporalion ...
Canadian Journal of Administrative Sciences, Apr 8, 2009
This paper investigates aftermarket volatility and underpricing of the Initial Public Offerings (... more This paper investigates aftermarket volatility and underpricing of the Initial Public Offerings (IPOs) listed on the Toronto Stock Exchange during the period 1990–1999. Our results indicate that aftermarket volatility has increased significantly but the average degree of underpricing has not increased. The decomposition of the aggregate aftermarket volatility in market, industry, and firm‐specific components reveals that the increase is mostly attributable to firm‐specific risk. We also find that the volatility of IPOs is smaller than that of comparable (matched) seasoned stocks. Although our results show an overall positive relationship between IPO underpricing and aftermarket volatility, we find that this relationship has become considerably weaker in recent years.RésuméCet article étudie la volatilité après‐bourse et la sousévaluation des titres suite à un appel public à l'épargne (APE) à la bourse de Toronto durant la période 1990–1999. Nos résultats indiquent que la volatilité aprèsbourse a augmenté de manière significative, mais que le niveau moyen de la sous‐évaluation quant à lui est resté intact. La décomposition de la volatilité totale aprèsbourse selon ses composantes de marché, d'industrie et celle propre aux firmes, indique que l'augmentation de la volatilité peut être attribuée aux risques spécifiques aux firmes. Nous trouvons aussi que la volatilité des APE est plus faible que celle des émissions d'actions comparables déjà listées. Bien que nos résultats montrent une relation positive globale entre la sous‐évaluation des APE et la volatilité subséquente à l'émission, nous estimons que cette relation s'est considérablement affaiblie au cours des dernières années.
An examination of initial public offerings (IPOs) that went public in Canada between 1971 and 198... more An examination of initial public offerings (IPOs) that went public in Canada between 1971 and 1983 and subsequently traded on the Toronto Stock Exchange indicates that Canadian IPOs, like their U.S. counterparts, are on average underpriced. The average degree of underpricing ranged from 9 to 11.5 per cent, concentrated in the first three days from issuance. The level of underpricing varied significantly across firms, however. Approximately 40 per cent of the sample issues were actually overpriced. Tests indicate that underpricing was significantly related to three variables-trading volume, business sector of the firm and the use to which funds from the offering were put. Underpricing was greater, the thinner the trading in the security (as measured by the number of days traded divided by the number of days listed over the first 200 trading days). IPO underpricing was more pronounced for firms in the industrial sector than for firms in other sectors of the economy. Issues raising funds for pure investment purposes (e.g., acquisition, exploration and research) experienced more underpricing than issues raising funds for other purposes. The evidence suggests that underpricing was not related to issuespecific measures of risk such as variance or beta.
At the end of 1983, up to 10 per cent of the aggregate value of the Toronto Stock Exchange was ac... more At the end of 1983, up to 10 per cent of the aggregate value of the Toronto Stock Exchange was accounted for by shares with restricted voting privileges. In most cases, these shares were distributed to holders of the original common stock. The approach is similar to a stock split, where the firm exchanges, say, one restricted voting (RV) share and one superior voting (SV) share for each original common. Analysis of the cumulated, cross-sectional differences between the returns observed over such a stock-split period and model-generated expected returns reveals the price effects of RV share issuance. There are no significant effects prior to a firm's announcement of intent to issue RV shares and only weak evidence of a price decline in conjunction with the announcement. A significant fraction of firms exhibit declining share prices in conjunction with the actual issuance of RV shares, however. Furthermore, the decline is traceable to a decrease in RV share prices, which precedes an increase in SV share prices by about one day. In effect, holders of SV shares enjoy a relative positive premium of roughly 7 per cent. The evidence suggests that investors are likely to "vote with their feet "-to choose alternative investments rather than hold shares with restricted voting privileges. It is thus particularly important that minority shareholders be given a say in a firm 's decision to issue such shares.
AbstractThirty years of Canadian evidence has been used to shed light on the motivation and impli... more AbstractThirty years of Canadian evidence has been used to shed light on the motivation and implications of stock splits, stock dividends, and reverse splits. The maximum 5-year period before and after the “event” month was focused and the changes in stock return, earnings per share (EPS), beta, trading volume, number of transactions, price to earning ratio (P/E), valuation, and corporate governance characteristics were examined. Strong information signaling effect of stock splits was found, as well as persistent superior performance and a favorable change in relative valuation are observed in the post-stock split period. The total trading volume increases after stock split ex-date while the trading volume per transaction decreases considerably, signifying a possible change in investor composition. However, no accompanying change was found in the governance environment. The overall evidence supports the signaling hypothesis as well as the optimum price and the relative valuation hypotheses. Stock dividend and reverse stock split firms have significantly weaker stock performance and operating performance than stock split firms. The negative trend does not improve in a long-term after the ex-date.
Journal of small business and entrepreneurship, 1988
... to thank D. Jardine for expert research assistance, C. Georgas and A. Riding for helpful comm... more ... to thank D. Jardine for expert research assistance, C. Georgas and A. Riding for helpful comments and D. Ryerson for editorial ... active bualnau, primarily In Canada with aasots (including tioM of tie aitodaiad corporations)< $35 million (2) Prescribed Ventura Capital Coiporalion ...
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