Long-Run Underperformance on Seasoned Equity Offerings: An Evidence from Indonesia

Authors

DOI:

https://doi.org/10.21512/bbr.v10i1.5403

Keywords:

underperformance phenomenon, issuing firms, Seasoned Equity Offerings (SEO)

Abstract

The research aimed to analyze the underperformance phenomenon following Seasoned Equity Offering (SEO)in Indonesian context. Samples were all firms listed on the Indonesia Stock Exchange with the right issue in the observed periods, were chosen by purposive sampling with several criteria. In total, there were 109 issuing firms from 2009-2014 that were analyzed using performance benchmarking approaches. The approaches consisted of market-based, size-based, growth-based, and industry-based benchmarks. The market-based was constructed using a market return. Then, the size and the growth benchmarks were constructed on the basis of closest market capitalization and closest price-to-book value respectively. Then, the industry benchmark was based on a closest combined of market capitalization and Price to Book Value (PBV) of matched firms within the first-second digit of Standard Industry Classification (SIC). The test was conducted using standard t and Wilcoxon tests by examining the benchmark-based abnormal returns over various spans ranging from 3 to 36 months following the right offerings. Like several findings in developed countries, the results also confirm the underperformance phenomenon following right offerings in Indonesia. The negative abnormal returns are found for all benchmark performances, but they are only significant for the market benchmark and partially significant for the size and the growth benchmarks. Behavioral explanations need to be modeled to reveal the intuitions behind the results.

Dimensions

Plum Analytics

References

Allen, D. E., & Soucik, V. (2008). Long-run underperformance of seasoned equity offerings: Fact or an illusion? Mathematics and Computers in Simulation, 78(2-3), 146-154. https://doi.org/10.1016/j.matcom.2008.01.034

Andrikopoulos, P. (2009). Seasoned equity offerings, operating performance and overconfidence: Evidence from the UK. Journal of Economics and Business, 61(3), 189-215. https://doi.org/10.1016/j. jeconbus.2008.09.002

Assefa, T. A., Esqueda, O. A, & Galariotis, E. C. (2014). Overreaction evidence from large-cap stocks. Review of Accounting and Finance, 13(4), 310-325. https://doi.org/10.1108/RAF-05-2013-0072

Bahri, S. (2018). Analisis perbedaan kinerja keuangan sebelum dan sesudah right issue (Studi pada entitas manufaktur yang terdaftar di Bursa Efek Indonesia). Referensi: Jurnal Ilmu Manajemen dan Akuntansi, 6(1), 11-25. http://dx.doi.org/10.33366/ref.v6i1.982

Banerjee, A., De, A., & Bandyopadhyay, G. (2018). Momentum effect, value effect, risk premium and predictability of stock returns – A study on Indian market. Asian Economic and Financial Review, 8(5), 669-681. http://dx.doi.org/10.18488/journal. aefr.2018.85.669.681

Ben-David, I., Birru, J., & Rossi, A. (2019). Industry familiarity and trading: Evidence from the personal portfolios of industry insiders. Journal of Financial Economics, 132(1), 49-75. http://doi.org/10.1016/j.jfineco.2018.08.007

Bessler, W., Drobetz, W., Seim, M., & Zimmermann, J. (2016). Equity issues and stock repurchases of initial public offerings. European Financial Management, 22(1), 31-62. https://doi.org/10.1111/eufm.12053

Brisker, E. R., Autore, D. M., Colak, G., & Peterson, D. R. (2014). Executive compensation structure and the motivations for seasoned equity offerings. Journal of Banking & Finance, 40(March), 330-345. https://doi.org/10.1016/j.jbankfin.2013.12.003

Brous, P. A., Datar, V., & Kini, O. (2001). Is the market optimistic about the future earnings of seasoned equity offering firms? Journal of Financial and Quantitive Analysis, 36(2), 141-168. https://doi.org/10.2307/2676269

Cazier, R., Desir, R., Pfeiffer, R. J., & Albert, L. (2018). Intra-industry information transfer effects of leading firms’ earnings narratives. Review of Quantitative Finance and Accounting, 1-21. https://doi.org/10.1007/s11156-018-0782-x

Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2-19. https://doi.org/10.1016/j.jacceco.2010.01.002

Da Cunha, J. A., & Seetharam, Y. (2018). The long run performance of secondary equity offerings on the Johannesburg Stock Exchange. International Journal of Emerging Markets, 13(5), 1211-1232. https://doi.org/10.1108/IJoEM-02-2017-0042

Devos, E., Devos, E., Ong, S. E., & Spieler, A. C. (2017). Are REIT investors overly optimistic after equity offerings?: Evidence from analyst forecast errors. In 24th Annual European Real Estate Society Conference. http://doi.org/10.1007/s11146-017-9608-1

Du, W., Chen, X., & Zhang, T. (2016). Long-run performance of SEOs regulated by profitability thresholds: Evidence from Chinese public offerings. China Journal of Accounting Studies, 4(4), 456-474. https://doi.org/10.1080/21697213.2016.1252089

Dutta, A. (2017). Seasoned Equity Offerings: Further Evidence from Australia. Global Business Review, 18(4), 1010-1018. https://doi.org/10.1177/0972150917692403

Eckbo, B. E., Masulis, R. W., & Norli, Ø. (2000). Seasoned public offerings: Resolution of the ‘new issues puzzle’. Journal of Financial Economics, 56(2), 251-291. https://doi.org/10.1016/S0304-405X(00)00041-6

Eom, C. (2014). Long-run performance of US seasoned equity offerings after the year 1995. Journal of Applied Business Research, 30(5), 1305-1312. https://doi.org/10.19030/jabr.v30i5.8787

Fama, E. F., & French, K. R. (1996). Multifactor explanations of asset pricing anomalies. The Journal of Finance, 51(1), 55-84. https://doi.org/10.1111/j.1540-6261.1996.tb05202.x

Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49(3), 283-306. https://doi.org/10.1016/S0304-405X(98)00026-9

Foster, G. (1981). Intra-industry information transfers associated with earnings releases. Journal of Accounting and Economics, 3(3), 201-232. https://doi.org/10.1016/0165-4101(81)90003-3

Fu, F., & Huang, S. (2015). The persistence of long-run abnormal returns following stock repurchases and offerings. Management Science, 62(4), 905-1224. https://doi.org/10.1287/mnsc.2015.2150

Har, W. P., & Visvanathan, K. (2018). Secondary equity offerings long run underperformance: Puzzle or mistake. Asian Economic and Financial Review, 8(2), 189-204. DOI:10.0.72.56/journal.aefr.2018.82.189.20

Harris, S. (2003). The long-term performance of UK stocks after making rights issues. Journal of Asset Management, 4(5), 308-317. https://doi.org/10.1057/palgrave.jam.2240111

Harshita, Singh, S., & Yadav, S. S. (2018). Changing nature of the value premium in the Indian Stock Market. Vision, 22(2), 135-143. https://doi.org/10.1177/0972262918766135

Huang, C. W., Ho, P. H., Lin, C. Y., & Yen, J. F. (2014). Firm age, idiosyncratic risk, and long-run SEO underperformance. International Review of Economics & Finance, 34(November), 246-266. https://doi.org/10.1016/j.iref.2014.08.009

Huang, Y., Uchida, K., & Zha, D. (2016). Market timing of seasoned equity offerings with long regulative process. Journal of Corporate Finance, 39(August), 278-294. https://doi.org/10.1016/j.jcorpfin.2016.05.001

Jegadeesh, N. (2000). Long-term performance of seasoned equity offerings: Benchmark errors and biases in expectations. Financial Management, 29(3), 5-30. http://doi.org/10.2307/3666227

Kamalsah, M. G. J., & Panjaitan, Y. (2015). Analisis pengaruh pengumuman right issue terhadap abnormal return dan volume perdagangan saham di Bursa Efek Indonesia periode tahun 2009–kuartal 3 tahun 2012. Jurnal Akuntansi, 8(2), 116-148. http://dx.doi.org/10.25170%2Fjrak.v8i2.393

Kaya, H. D. (2014). The market timing theory of capital structure revisited: Evidence from the SEO Market. International Journal of Economic Perspectives, 8(1), 62-74.

Kothari, S. P., Mizik, N., & Roychowdhury, S. (2016). Managing for the moment: The role of earnings management via real activities versus accruals in SEO valuation. The Accounting Review, 91(2), 559-586. https://doi.org/10.2308/accr-51153

Lizinska, J. (2018). Portfolio-based benchmarks and the long-term performance of SEOs for an emerging market. Argumenta Oeconomica, 41(2), 423-435. DOI: 10.15611/aoe.2018.2.18

Loughran, T., & Ritter, J. R. (1995). The new issues puzzle. The Journal of finance, 50(1), 23-51. https://doi.org/10.1111/j.1540-6261.1995.tb05166.x

Loughran, T., & Ritter, J. R. (2000). Uniformly least powerful tests of market efficiency. Journal of Financial Economics, 55(3), 361-389. https://doi.org/10.1016/S0304-405X(99)00054-9

Ltaifa, M. B. (2018). Do book to market and size explain stock returns of banks? An empirical investigation from MENA economies. International Journal of Managerial and Financial Accounting, 10(3), 223-249. https://doi.org/10.1504/IJMFA.2018.093491

Mansali, H., & Daadaa, W. (2018). Equities issues and longterm firm’s performances in Tunisian Stock Market. International Journal of Managerial and Financial Accounting, 10(1), 32-47. https://doi.org/10.1504/IJMFA.2018.091074

Mohrschladt, H. (2018). The impact of size and bookto-market among paired stocks. Journal of Asset Management, 19(6), 384-393. https://doi.org/10.1057/s41260-018-0089-4

Prokopczuk, M. (2010). Intra-industry contagion effects of earnings surprises in the banking sector. Applied Financial Economics, 20(20), 1601-1613. https://doi.org/10.1080/09603107.2010.508718

Qian, H. (2014). The timing of seasoned equity offerings: A duration analysis. Managerial Finance, 40(6), 565-586. https://doi.org/10.1108/MF-09-2013-0244

Rafik, A., & Arafah, E. (2019). The intra-industry spillovers of Indonesian right offerings. MIX: Jurnal Ilmiah Manajemen, 9(1), 190-204. dx.doi.org/10.22441/mix.2019.v9i1.01

Raghuram, G. (2017). Stationarity of the Fama-French Three Factor model factor premiums in India. Pertanika Journal of Social Sciences & Humanities, 25(3), 1097-1120.

Rashid, S. H., Sadaqat, M., Jebran, K., & Memon, Z. A. (2018). Size premium, value premium and market timing: Evidence from an emerging economy. Journal of Economics, Finance and Administrative Science, 23(46), 266-288. https://doi.org/10.1108/JEFAS-09-2017-0090

Roszkowska, P., & Langer, L. K. (2019). (Ab) normal returns in an emerging stock market: International investor perspective. Emerging Markets Finance and Trade, 1-25. https://doi.org/10.1080/154049 6X.2018.1531241

Shaharuddin, S. S., Lau, W. Y., & Ahmad, R. (2018). Is the Fama French Three-Factor Model relevant? Evidence from Islamic unit trust funds. The Journal of Asian Finance, Economics and Business (JAFEB), 5(4), 21-34. http://doi.org/10.13106/jafeb.2018. vol5.no4.21

Shu, P. G., & Chiang, S. J. (2014). Firm size, timing, and earnings management of seasoned equity offerings. International Review of Economics & Finance, 29(January), 177-194. https://doi.org/10.1016/j.iref.2013.05.011

Silva, A., & Bilinski, P. (2015). Intended use of proceeds, underwriter quality and the long‐run performance of SEOs in the UK. Journal of Business Finance & Accounting, 42(9-10), 1282-1309. https://doi.org/10.1111/jbfa.12171

Susanti, P. A., & Ardiana, P. A. (2014). Reaksi pasar terhadap pengumuman right issue pada perusahaan warrant issuer dan non warrant issuer. E-Jurnal Akuntansi, 9(1), 221-236.

Thomas, J., & Zhang, F. (2008). Overreaction to intraindustry information transfers? Journal of Accounting Research, 46(4), 909-940. https://doi.org/10.1111/j.1475-679X.2008.00294.x

Wang, Q., Gao, J., & Wang, X. (2015). Literature review on a common phenomenon: The underperformance of the listed companies after SEO—Based on the view of earnings management. In 2015 12th International Conference on Service Systems and Service Management (ICSSSM) (pp. 1-5). http://doi.org/10.1109/ICSSSM.2015.7170160

Woltering, R. O., Weis, C., Schindler, F., & Sebastian, S. (2018). Capturing the value premium–global evidence from a fair value-based investment strategy. Journal of Banking & Finance, 86(January), 53-69. https://doi.org/10.1016/j.jbankfin.2017.06.009

Yi, B., El-Badawi, M. H., & Lin, B. (2008). Pre-issue investor optimism and post-issue underperformance. Financial Analysts Journal, 64(5), 77-87. https://doi.org/10.2469/faj.v64.n5.8

Young, W., & Wu, C. C. (2017). Abnormal investment, changes in institutional ownership, and SEO longrun performance. Managerial Finance, 43(8), 842-864. https://doi.org/10.1108/MF-08-2016-0243

Downloads

Published

2019-03-31
Abstract 1140  .
PDF downloaded 378  .