LONG TERM UNDERPERFORMANCE ANOMALY and ITS DTERMINANT FACTORS on SEASONED EQUITY OFFERINGS: EVIDENCE FROM TURKEY

Year 2018, Volume: 7 Issue: 3, 208 - 227, 30.09.2018

Mustafa Cikrikci , Mustafa Ozyesil

Abstract

Purpose- This
study investigates long term underperformance anomaly existence on Seasoned
Equity Offerings (seos) conducted in Borsa Istanbul for the 2010 – 2015 period
and analyzes its determinant factors.   

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
were 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- Long-term price performance
of firms that performed seos during the 2010-2015 period were calculated lower
than market average and peer groups and all findings were statistically
significant. Same results were obtained when the analysis was conducted on the
basis of year and sector.

Conclusion- Long-term
underperformance anomaly was confirmed and it has been determined that Leverage
Change Ratio, Private Placemet method and Volume variables have a positive
effect on long-term price performance while all other variables have a negative
effect.

Keywords

Seasoned equity offering, underperformance, capital increase, abnormal stock returns, price anomalies

References

• Allen, D. E., Soucik, V. (2008). Long run underperformance of seasoned equity offerings fact or an illusion. Journal Mathematics and Computers in Simulation. 78 (2/3). 146 - 154.
• Asquith, P., Mullins, D. W. (1986). Equity issues and offering dilution. Journal of Financial Economics. 1 (15). 61 - 89.
• Bessler, W., Thies, S. (2006). Initial public offerings, subsequent equity offerings and long - run performance: evidence from IPOs in Germany. The Journal of Entrepreneurial Finance, 1 (3). 1-37.
• Bilinski, P., Liu, W., Strong, N. (2012). Does liquidity risk explain low firm performance following seasoned equity offerings. Journal of Banking and Finance. 36 (10). 2.770-2.785.
• Chen, S. L., Lin, C. Y., Lin, Y. M. (2013). Ownership structure, idiosyncratic risk and financing policy. Journal of International Finance Studies. 13 (2). 51-62.
• Clarke, J., Dunbar, C., Kahle, K. M. (2001). Long - run performance and insider trading in completed and canceled seasoned equity offerings. Journal of Financial & Quantitative Analysis. 36 (4). 415-430.
• Denis, D. J., Sarin, A. (2001). Is the market surprised by poor earnings realizations following seasoned equity offerings?. The Journal of Financial and Quantitative Analysis. 36 (2). 169-193.
• Dubois, M., Jeanneret, P. (2000). The long - run performance of seasoned equity offerings with rights. 1-37.
• Eckbo, B. E., Masulis, R. W., Norli, Q. (2000). Seasoned public offerings: resolution of the new issues puzzle. Journal of Financial Economics. 56 (2). 251 - 291.
• Gao, X., Ritter, J. R. (2010). The marketing of seasoned equity offerings. The Journal of Financial Economics. 97 (1). 33 - 52.
• Göçer, İ. (2015). Ekonometri. İzmir : Lider Yayınları.
• Gökkaya, S., Highfield, M. J. (2014). Sales of secondary shares In SEOs : a comparison across top managers, other insiders and outsiders. Financial Management Association International. 43 (4). 757-794.
• Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Journal of Econometric Society. (37). 424-438.
• Gujarati, D.N. (2004). Basic econometrics (Fourth Edition): McGraw Hill.
• Harjoto, M., Garen, J. (2003). Why do IPO firms conduct primary seasoned equity offerings?. The Financial Review. 38 (1). 103 - 125.
• Harris, S. (2004). The long-term performance of UK stocks after making rights issues. Journal of Asset Management. 4 (5). 308 - 317.
• He, Y., Wang, J., Wei, J. K. C. (2013). Information asymmetry before and after SEOs and SEO underpricing. Research Centre for International Economics Working Paper. City University of Hong Kong.
• Huang, C. W., Ho, P. H., Lin, C., Yen, J. F. (2014). Firm age, idiosyncratic risk and long - run SEO underperformance. International Review of Economics & Finance. (34). 246-266.
• Huang, Z. (2012). Seasoned equity offerings in China. Phd Thesis, SOAS University of London.
• Islam, M. S., Uddin, M. M., Ahmad, S. (2002). The operating performance of firms conducting seasoned equity offerings in Bangladesh. Journal of Business Studies. 23 (2). 1-42.
• Jarnecic, E., Yubo, L. (2013). Equity issues and the impact of lead manager affiliation on broker market share and trading volume. Global Conference On Business & Finance Proceedings. 1 (8).
• Jeanneret, P. (2005). Use of the proceeds and long - term performance of French SEO firms. European Financial Management. 11 (1). 99 – 122.
• Jegadeesh, N., Weinstein, M., Welch, I. (1993). An empirical investigation of IPO returns and subsequent equity offerings. Journal of Financial Economics. 34 (2). 153 - 175.
• Jo, H., Kim, Y. (2008). Ethics and disclosure: a study of the financial performance of firms in the seasoned equity offerings market. Journal of Business Ethics. 80 (4). 855-878.
• Jo, H., Kim, Y., Shin, D. (2012). Underwriter syndication and corporate governance. Review of Quantitative Finance & Accounting. 38 (1). 61-86.
• Kim, D., Palia, D., Saunders, A. (2008). The impact of commercial banks on underwriting spreads: evidence from three decades. Journal of Financial & Quantitative Analysis. 43 (4). 975-1000.
• Loughran, T., Ritter, J. R. (1997). The operating performance of firms conducting seasoned equity offerings. Journal of Finance. 52 (5). 1823 - 1850.
• Loughran, T. (1997). Book-to-market across firm size, exchange, and seasonality: is there an effect?. Journal of Financial and Quantitative Analysis. 32 (3). 249 - 268.
• Lyandres, E., Le, S., Lu, Z. (2008). The new issues puzzle: testing the investment-based explanation. Review of Financial Studies. 21 (6). 2825-2855.
• Ngatuni, P., Capstaff, J., Marshall, A. (2007). Long - term performance following rights issues and open offers in the UK. Journal of Business Finance and Accounting. 34 (1/2). 33 - 64.
• Pedroni, P. (2004). Panel cointegration; asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory. 1(20) 597-625.
• Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics. 1(22). 265 – 312.
• Ritter, J. R. (1991). The long - run performance of initial public offerings. Journal of Finance. 46 (1). 3 - 27.
• Rubalcava, A. (2012). Valuation effects of the Sarbanes-Oxley act: evidence from seasoned equity offerings by Canadian cross-listed firms. Midwest Finance Association Annual Meeting Paper. 1-16.
• Scholes, M. S. (1972). The market for securities: substitution versus price pressure and the effects of information on share prices. The Journal of Business. 45 (2). 179 - 211.
• Seal, J. K., Matharu, J. S. (2012). Long run performance of initial public offerings and seasoned equity offerings in India. Working Paper, Indian Institute of Foreign Trade.
• Spiess, D. K., Graves, J. A. (1995). Underperformance in long-run stock returns following seasoned equity offerings. Journal of Financial Economics. 38 (3). 243 - 267.
• Tarı, R. (2012). Ekonometri. Kocaeli : Umuttepe Yayınları.
• Teoh, S. H., Welch, I., Wong, T. J. (1998). Earnings management and the underperformance of seasoned equity offerings. Journal of Financial Economics.1 (50). 63 - 99.
• Virolainen, M. (2009). macro and micro determinants of seasoned equity offerings and issuer stock market performance. Master Thesis, Helsinki School of Economics Accounting And Finance Department.
• Walker, M. D., Yost, K., Zhao, J. (2016). Credibility and multiple SEOs : what happens when firms return to the capital market?. Journal of Financial Management Association International. 45 (3). 67-70.