Competitive effects of Australian IPOs

McGilvery, Andrew (2010). Competitive effects of Australian IPOs Honours Thesis, UQ Business School, The University of Queensland.

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Author McGilvery, Andrew
Thesis Title Competitive effects of Australian IPOs
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2010-10-28
Thesis type Honours Thesis
Supervisor Robert Faff
Shams Pathan
Total pages 90
Language eng
Subjects 1502 Banking, Finance and Investment
Abstract/Summary This thesis examines the market impact of initial public offerings (hereafter IPOs) on industry competitors as observed by their abnormal return behaviour around the event date. Prior literature commonly refers to this phenomenon as information transfer which is said to occur when a corporate event has wider implications for the competitors of the announcing firm. This thesis focuses on the pricing effects which Australian IPOs have on rival firms, with the primary research questions being whether or not a price reaction is evident, and if so, to what extent can this be explained. While previous studies address this issue by examining rival firm and industry factors, I extend on the literature by testing the effects of characteristics relating to the IPO firm itself. Specifically, the effects of the IPO firm’s corporate governance profile and the intended use of offer proceeds are examined to assess whether and to what extent they hold relevance in the process of information transfer. Using a sample of 106 IPOs between 1999 and 2009, initial results indicate that rival firms react negatively to the completion of an IPO on days leading up to and including the event date. Multivariate analysis shows that in relation to corporate governance factors, both board size and CEO share ownership exhibit negative relationships with rival firm abnormal returns. Moreover, IPOs which disclose either investment, or both debt reduction and investment as the intended use of proceeds result in a greater negative price impact upon rival firms. Finally, the results demonstrate that while IPO disclosure regarding investment has a greater negative impact upon rival firms, there is no ‘intensity’ dimension to this relationship i.e. it does not hold when a continuous variable is used which measures the dollar amount of intended investment.

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Created: Tue, 17 Jul 2012, 10:33:07 EST by Karen Morgan on behalf of UQ Business School