Factors and characteristics impacting underpricing of Initial Public Offerings (IPOs) on the Johannesburg Securities Exchange (JSE)

[摘要] English: The research was undertaken to determine the factors and characteristics that impact underpricing of Initial Public Offerings (IPOs) on the Johannesburg Securities Exchange (JSE). The data were acquired from the JSE, IPO prospectus and the McGregor-BFA database. The sample consisted of 390 IPOs from a possible population of 484 between 1996 and 2011, representing 80.6% of the IPOs listed on the JSE for the specified period. The literature reveals that certain factors and characteristics affect the level of underpricing of IPOs. For this study, the market-related factors, company characteristics and financial factors were included. The data were very skew because of outliers in the dataset that caused the data to be very difficult to interpret and unreliable. To rectify this problem, the study made use of natural logarithms to reduce the Skewness, improve the accuracy and ensure that the data were close to that of a normal distribution. Both the offer price and market capitalisation were adjusted using the consumer price index (CPI) for inflation. The JSE All-share Index (ALSI) was used as a benchmark for the short-term performance (market-adjusted abnormal return �?MAAR) and the relative medium-term performance (buy and hold abnormal returns �?BHAR).The research findings revealed the following:- The levels of underpricing on the first day and in the first week and first month were 23.0%, 22.1% and 17.3% respectively.- IPOs listed in hot market periods received significantly higher returns. The JSE experienced a decrease in the number of IPOs being listed in both the later hot and cold market periods.- AltX IPOs achieved significantly higher returns.- The electronic and technology sector yielded the highest returns, followed by the financial and consumer sectors.- Younger IPOs with a small market capitalisation and offer price were significantly more underpriced than larger IPOs were.- Smaller companies, as measured by turnover, net profit after tax (NPAT), total assets and shareholders' equity, were significantly more underpriced when compared to larger companies.- The financial ratios revealed that IPOs with a debt ratio of between 40% and 60% were the least underpriced. The current ratio and the return on assets (ROA) yielded no statistical significance in predicting underpricing, whereas IPOs with a smaller return on equity (ROE) were significantly more underpriced.- IPOs with an extremely high price to earnings (P/E) ratio were also significantly underpriced. It was surprising that the market value to book value (MV/BV) did not reveal any significance in predicting underpricing on the JSE.- The absolute returns (Buy Hold Return - BHR) found that IPOs that were initially underpriced would perform positively (41.2%) over a period of one year; however, they would underperform (-12.0%) over three years.- The relative returns (Buy Hold Abnormal Returns - BHAR) also found that IPOs that were initially underpriced achieved positive returns in the first year after listing (30.3%) relative to the market; however, they would also underperform (-39.8%) in the market over three years.- Although both the hot and cold market periods underperformed in the market over a three-year period, the cold market IPOs achieved significantly better medium returns.- IPOs listed on both the Main Board and AltX underperformed in the market over a three-year period; however, the Main Board IPOs performed significantly better in the medium term.The empirical findings of this study recommend that investors should buy IPOs at the offer price and sell them at the end of the first day of trading, as the level of underpricing revealed that the returns diminished towards the end of the first month. Investors seeking to improve their short-term returns should consider the above- mentioned factors and characteristics when making an investment decision, as these factors can act as a guide for superior returns.

[发布机构] University of the Free State