Competitive Valuation Effects of Australian IPOs

Abstract

This study examines the valuation effects that Australian initial public offerings (IPOs) have on industry competitors and to what extent this can be explained by the IPO firm’s corporate governance profile and the intended use of their offer proceeds. Using a sample of 106 IPOs between 1999 and 2009, the results indicate that companies experience negative stock price reactions to the completion of an IPO in their industry on days leading up to and including the event date. The multivariate results show that in relation to corporate governance factors, both board size and CEO share ownership exhibit negative relationships with rival firm abnormal returns. Moreover, IPOs which disclose either investment, or both debt reduction and investment as the intended use of proceeds result in a greater negative price impact upon rival firms.

Keywords: Initial public offerings, Corporate Governance, Board size, CEO ownership, Abnormal return, Information transfer

JEL Classification: G11, G14, G34