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SHORT TERM UNDERPRICING ANOMALY AND ITS DETERMINANT FACTORS ON SEASONED EQUITY OFFERINGS: A RESEARCH ON THE STOCKS TRADED ON THE BORSA ISTANBUL (BIST)

Year 2019, Volume: 8 Issue: 1, 1 - 16, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1011

Abstract

Purpose - The main objective of this study is to analyze the short-term price performance of the stocks issued by the 58 companies conducted 79 seasoned equity offerings (seos) during the 2010-2015 period in Borsa İstanbul and find out its determinant factors on the short-term price anomalies.
Methodology – Raw and abnormal returns were calculated then t statistics were obtained for each type of returns. All returns were compared to market average and peer groups returns. The hypotheses were tested via the comparison t statistics and t values. Regression analysis was used to determine what kind of determinants affect long-term price performance. To find out underperformance anomaly’s determinants regression analysis was used through Panel Dynamic OLS (PDOLS) method. The analysis was also conducted based on year and sector separately.
Findings- Short-term price performance of firms that performed seos during the 2010-2015 period are the function of two dimension consist of time duration and industry because price performance of the stocks can vary depending on these factors.
Conclusion- According to the t-test results, the short-term underpricing anomaly cannot be fully confirmed in Borsa Istanbul during the analysis period. It has been confirmed statistically only in 2011 and 2015 years and in the stocks of the industrial sector. In other words, it is possible for investors to obtain higher returns than market average in the short term if they purchase shares from the seos performed in 2011 and 2015 carried out by companies in the industry sector. Determinants that considered as independent variables in study include; Stock Price, Number of Public Offerings, Company Size, Public Offering Method, Transaction Volume, Difference, Leverage Ratio, Capital Increase Rate, M / B ratio and Volatility. Based on panel regression analysis, leverage ratio change, capital increase rate and public placement have positive effect on share price performance while other variables such as M / B ratio and private placement have a negative impact.

References

  • Altınkılıç, O., Hansen, R. S. (2003). Discounting and underpricing in seasoned equity offers. Journal of Financial Economics, 69 (2), 285 - 323.
  • Asquith, P., Mullins, D. W. (1986). Equity issues and offering dilution. Journal of Financial Economics, (15), 61 - 89.
  • Bowen, R. M., Chen, X., Cheng, Q. (2008). Analyst coverage and the cost of raising equity capital: Evidence from underpricing of seasoned equity offerings. Contemporary Accounting Research - The Canadian Academic Accounting Association, 25 (3). 641 - 946.
  • Corwin, S. A. (2003). The Determinants of Underpricing For Seasoned Equity Offers. Journal of Finance, 58 (5). 2249 - 2279.
  • Dempere, J. M. (2012). Factors That Impact Underpricing of Seasoned Equity Offerings. Review of Business, 33 (1). 65-82.
  • Deng, X., Hrnjic, E., Ong, S. E. (2014). Investor sentiment and the SEO pricing process: Evidence from REITs. Journal of Real Estate Literature, 20 (2). 85-109.
  • Gerard, B, Nanda, V. (1993). Trading and manipulation around seasoned equity offerings. The Journal of Finance, 48 (1), 213 – 245.
  • Goodwin, K. R. (2013). Discounting and underpricing of REIT seasoned equity offers. Journal of Real Estate Research, 35 (2), 153 – 172.
  • Göçer, İ. (2015). Ekonometri. İzmir: Lider Yayınları.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Journal of Econometric Society, (37), 424-438.
  • He, Y., Wang, J., Wei, J. K.C. (2014). A comprehensive study of liquidity before and after SEOs and SEO underpricing. Journal of Financial Markets, (20). 61-78.
  • Hess, A. C., Frost, P. A. (1982). Tests for price effects of new issues on seasoned securities. The Journal of Finance, 37 (1), 11 – 25.
  • Ibbotson, R. G., Ritter, J. R. (1988). Initial public offerings. Journal of Applied Corporate Finance, 1 (2). 37 - 45.
  • Im, K. S., Pesaran, M. H., Shin, Y. (2003). Testing for unit roots in heterogeneous panel. Journal of Econometrics, (115), 53-74.
  • Jiang, Y., Stohs, M., Xie, X. (2013). Do firms time seaosened equity offerings? Evidence from SEOs Issued Shortly after IPOs.
  • LO, L. Y. (2011). The impact of corporate transparency on seasoned equity offerings. International Journal of the Academic Business World, 5 (2). 77-85.
  • Logue, D. E. (1973). On the pricing of unseasoned equity issues: 1965-1969. Journal of Financial and Quantitative Analysis, 8 (1), 91 - 103.
  • Myers, S. C., Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information the investors do not have. Journal of Financial Ecconomics, 13 (2). 187 – 221.
  • Ngo, D. A., Varela, O. (2012). Earnings smoothing and the underpricing of seasoned equity offerings (SEOs). Managerial Finance, 38 (9), 833 - 859.
  • Parson, J. E., Raviv, A. (1985). Underpricing of seasoned issues. Journal of Financial Economics, 14 (3), 377 - 397.
  • Pedroni, P. (2004). Panel cointegration; asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, (20), 597-625.
  • Ritter, J. R. (1991). The long - run performance of initial public offerings. Journal of Finance, 46 (1), 3 - 27.
  • Ruutu, K. (2010). Ownership structure and choice of issue method in seasoned equity offerings. Master Thesis, Helsinki School of Economics Accounting and Finance Department.
  • Tarı, R. (2012). Ekonometri. Kocaeli: Umuttepe Yayınları.
  • Welch, I. (1989). Seasoned equity offerings, imitation costs and the underpicing of initial public offerings. The Journal of Finance, 44 (2), 421 - 449.
  • Welch, I. (1992). Sequential sales, learning, and cascades. The Journal of Finance, 47 (2). 695 – 732.
  • Wu, C., Kwork, C. C. K. (2007). Long – run performance of global versus domestic initial public offerings. Journal of Banking & Finance, (31). 609 -627.
Year 2019, Volume: 8 Issue: 1, 1 - 16, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1011

Abstract

References

  • Altınkılıç, O., Hansen, R. S. (2003). Discounting and underpricing in seasoned equity offers. Journal of Financial Economics, 69 (2), 285 - 323.
  • Asquith, P., Mullins, D. W. (1986). Equity issues and offering dilution. Journal of Financial Economics, (15), 61 - 89.
  • Bowen, R. M., Chen, X., Cheng, Q. (2008). Analyst coverage and the cost of raising equity capital: Evidence from underpricing of seasoned equity offerings. Contemporary Accounting Research - The Canadian Academic Accounting Association, 25 (3). 641 - 946.
  • Corwin, S. A. (2003). The Determinants of Underpricing For Seasoned Equity Offers. Journal of Finance, 58 (5). 2249 - 2279.
  • Dempere, J. M. (2012). Factors That Impact Underpricing of Seasoned Equity Offerings. Review of Business, 33 (1). 65-82.
  • Deng, X., Hrnjic, E., Ong, S. E. (2014). Investor sentiment and the SEO pricing process: Evidence from REITs. Journal of Real Estate Literature, 20 (2). 85-109.
  • Gerard, B, Nanda, V. (1993). Trading and manipulation around seasoned equity offerings. The Journal of Finance, 48 (1), 213 – 245.
  • Goodwin, K. R. (2013). Discounting and underpricing of REIT seasoned equity offers. Journal of Real Estate Research, 35 (2), 153 – 172.
  • Göçer, İ. (2015). Ekonometri. İzmir: Lider Yayınları.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Journal of Econometric Society, (37), 424-438.
  • He, Y., Wang, J., Wei, J. K.C. (2014). A comprehensive study of liquidity before and after SEOs and SEO underpricing. Journal of Financial Markets, (20). 61-78.
  • Hess, A. C., Frost, P. A. (1982). Tests for price effects of new issues on seasoned securities. The Journal of Finance, 37 (1), 11 – 25.
  • Ibbotson, R. G., Ritter, J. R. (1988). Initial public offerings. Journal of Applied Corporate Finance, 1 (2). 37 - 45.
  • Im, K. S., Pesaran, M. H., Shin, Y. (2003). Testing for unit roots in heterogeneous panel. Journal of Econometrics, (115), 53-74.
  • Jiang, Y., Stohs, M., Xie, X. (2013). Do firms time seaosened equity offerings? Evidence from SEOs Issued Shortly after IPOs.
  • LO, L. Y. (2011). The impact of corporate transparency on seasoned equity offerings. International Journal of the Academic Business World, 5 (2). 77-85.
  • Logue, D. E. (1973). On the pricing of unseasoned equity issues: 1965-1969. Journal of Financial and Quantitative Analysis, 8 (1), 91 - 103.
  • Myers, S. C., Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information the investors do not have. Journal of Financial Ecconomics, 13 (2). 187 – 221.
  • Ngo, D. A., Varela, O. (2012). Earnings smoothing and the underpricing of seasoned equity offerings (SEOs). Managerial Finance, 38 (9), 833 - 859.
  • Parson, J. E., Raviv, A. (1985). Underpricing of seasoned issues. Journal of Financial Economics, 14 (3), 377 - 397.
  • Pedroni, P. (2004). Panel cointegration; asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, (20), 597-625.
  • Ritter, J. R. (1991). The long - run performance of initial public offerings. Journal of Finance, 46 (1), 3 - 27.
  • Ruutu, K. (2010). Ownership structure and choice of issue method in seasoned equity offerings. Master Thesis, Helsinki School of Economics Accounting and Finance Department.
  • Tarı, R. (2012). Ekonometri. Kocaeli: Umuttepe Yayınları.
  • Welch, I. (1989). Seasoned equity offerings, imitation costs and the underpicing of initial public offerings. The Journal of Finance, 44 (2), 421 - 449.
  • Welch, I. (1992). Sequential sales, learning, and cascades. The Journal of Finance, 47 (2). 695 – 732.
  • Wu, C., Kwork, C. C. K. (2007). Long – run performance of global versus domestic initial public offerings. Journal of Banking & Finance, (31). 609 -627.
There are 27 citations in total.

Details

Primary Language English
Subjects Economics, Behaviour-Personality Assessment in Psychology, Finance, Business Administration
Journal Section Articles
Authors

Mustafa Cikrikci 0000-0002-2805-6079

Z. Feride Olcay 0000-0001-5720-7350

Mustafa Ozyesil 0000-0002-4442-7087

Publication Date March 30, 2019
Published in Issue Year 2019 Volume: 8 Issue: 1

Cite

APA Cikrikci, M., Olcay, Z. F., & Ozyesil, M. (2019). SHORT TERM UNDERPRICING ANOMALY AND ITS DETERMINANT FACTORS ON SEASONED EQUITY OFFERINGS: A RESEARCH ON THE STOCKS TRADED ON THE BORSA ISTANBUL (BIST). Journal of Business Economics and Finance, 8(1), 1-16. https://doi.org/10.17261/Pressacademia.2019.1011

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