Post-listing Performance of Initial Public Offerings in South Africa
Date
2011-10-24
Authors
Moodley, Kuvasen
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Abstract
Initial Public Offering’s (IPO’s) represent one of the vehicles used when a company lists on a particular stock exchange. The listing process amongst other things may involve an underwriter, and the role of the underwriter is two-fold. First, the underwriter has to ensure that the IPO is successful in terms of the requirements outlined by the listing company and, secondly the underwriter has to make certain that there is sufficient money on the table for investors to compensate them for the risk that they are undertaking in purchasing the unseasoned issues. This is one of the reasons cited in this research as to why the IPO’s trade at a premium following the offering.
The primary market investors, defined as those investors who are invited to participate in the primary offering, enjoy the premium offered by the IPO upon listing, but the secondary market does not benefit from this premium. This research report was tailored for investors in the secondary market to gauge whether the magnitude of the premium could be used to determine the one year aftermarket performance.
IPO’s from 1998 to 2007 were used for this research, which was a continuation of the studies done on South African IPO’s until 1998. It was found that IPO’s during the period of this study offered a mean premium of 28.39% to the primary investors, and that the correlation between the value of the initial premium and the one year aftermarket performance was -10.51%. From the above study the results indicate that there is little predictive power between the value of the initial premium and the one year aftermarket performance but it was interesting to note the negative relationship between the two variables.
Description
MBA thesis - WBS
Keywords
Initial public offerings - South Africa