The long-term performance of failed Initial Public Offerings (IPOs) on the Johannesburg Stock Exchange (JSE)

[摘要] English: One of the oldest and most popular phrases in business is: 'The only way to survive is to grow (Audretsch and Lehmann, 2005:6). However, more often than not the need to grow exceeds the financial resources available to accommodate the desired growth. One of the most popular methods to raise new capital is to issue an Initial Public Offering. Draho (2004:1) defines an Initial Public Offering (IPO) as the process where the shares of a private company become available to public investors for trading on the stock market.Gao, Ritter and Zhu (2012), describes the increasing failure of IPO listings as a problem in the IPO 'ecosystem and deem the IPO market as 'broken. Fama and French (2004) claim that there has been a change in IPO characteristics over the years. All indications are that the IPO market internationally has deteriorated regarding issues such as underpricing, long term underperformance, failure and the number of IPO listings. The primary objective of this study is to assess the long-term performance of 347 IPO companies that were listed on the Johannesburg Stock Exchange (JSE) from 1996 to 2007. A quantitative research approach was adopted. Because of skewed data natural logarithmic transformations were performed on data with a Z-value exceeding +/- 2.58. Also, all relevant values were adjusted for inflation which made comparing the output of the data over different time periods more reliable. All the industries on the JSE will be divided into six main sectors, namely: basic material, consumer goods, industrial, financial and real estate, electronic and lastly venture capitalThe main purpose of this study was to assist long-term investors in their long-term IPO investment selection process by presenting them with factors and characteristics which can assist them in differentiating between potentially failed and successful IPO companies. A significant negative relationship was found between failure and BHAR. It was found that failed IPO displayed an average BHAR of -60.69%. Other companies, which include surviving, delisted (for reasons other than failure) or merged IPOs, noted to have an average BHAR of -19.52%. Successful companies displayed an average BHAR of -3.26%.Taking the findings of this study into consideration the following was recommended to investors to be able to identify IPOs with high failure risk and potential poor long-term performance. With regards to cyclical markets, investors need to be particularly cautions when investing in an IPO which lists during a hot market period. When considering the board of listing, the AltX proved to have the most company failures as well as the worst long-term performance. With regards to the sector of listing, it was recommended to avoid sectors which experience high volumes of listings. It was also found that companies with a smaller age before listing displayed worse long-term underperformance and were more likely to fail. An initial offer price of below 175.97 cents and an issue size smaller than R232.43 million greatly improves the chances of poor long-term performance and company failure.The possibility of poor long-term performance as well as IPO failure is also increased when the day one MAAR is 136.47% or greater. Therefore, it is recommended to investors to take all the market factors, company characteristics and initial share price movements mentioned above into consideration when making an investment decision, as it will assist them in being able to identify potential failing IPO companies with poor long-term performance.

[发布机构] University of the Free State