THE LONG-TERM PERFORMANCE OF SOUTH

Abstract

The objective of this research was to investigate the long-term abnormal price performance of South African firms following rights issues over the period 1991- 2000. This research makes a number of contributions relative to prior research. South Africa, unlike most other national markets, favours rights issues over cash offers. Since most of the research has been conducted in developed markets, South Africa, as an emerging economy, provides a valuable opportunity to determine whether the underperformance of seasoned equity offers is confined only to first world economies. Results from the study showed that over a three to five year period, rights issuing firms underperformed their equally-weighted benchmarks. The underperformance appeared to be driven primarily by small issuers. These findings are consistent with the South African study by Affleck-Graves & Page (1996). The research also found that South African managers do not take advantage of overvaluation in the seasoned equity markets.