A research report submitted to the School of Economic and Business Sciences, Faculty of
Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment
(50%) of the requirements for degree of Master of Commerce in Finance.
Date of submission:
April 2016 / International studies have widely documented the long-run underperformance of firms
conducting secondary equity offerings (SEOs), a phenomenon commonly referred to as the
‘new issues puzzle’. Understanding the market’s reaction to SEOs is vital for managers who
are commonly tasked with deciding on how to finance their firm’s operations. This study
investigates the short-run and long-run performance of firms conducting SEOs on the
Johannesburg Stock Exchange (JSE) over the period of 1998 to 2015, by exploring both
rational and behavioural models in predicting SEO behaviour. Event-study analysis reveals that
the market generally reacts negatively to the announcement of SEOs with a statistically
significant average two-day cumulative abnormal return of -2.6%. Using a buy-and-hold
abnormal return approach, as well as factor regression analysis to study the long-run share
performance of issuing firms, there is no evidence that issuing firms significantly underperform
relative to non-issuing firms over a five-year period when testing for abnormal share return
performance with the Capital Asset Pricing Model. Furthermore, issuing firms exhibit no
consistent signs of operating underperformance in comparison to non-issuing firms over a fiveyear
period. Finally, in evidence contradicting the market timing theory, investor sentiment
appears to bear no consistently significant influence on either a firm’s decision to issue equity,
or on the short-run and long-run performance of SEOs. Overall, the results imply that the longrun
performance of SEOs conducted in South Africa is best described by rational explanations
centred on the risk-return framework. There is no consistent evidence of any ‘new issues
puzzle’ on the JSE. / MT2017
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/22136 |
| Date | January 2016 |
| Creators | Alves da Cunha, Jesse |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | Online resource (vii, 112 leaves), application/pdf |
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