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Underpricing of energy IPOs in Australia

Dimovski, William 2009, Underpricing of energy IPOs in Australia, in Second multinational energy and value conference, Hacettepe University, Instanbul, Turkey, pp. 39-41.

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Title Underpricing of energy IPOs in Australia
Author(s) Dimovski, William
Conference name Multinational Energy and Value Conference (2nd : 2009 : Instanbul, Turkey)
Conference location Instanbul, Turkey
Conference dates 2-5 July 2009
Title of proceedings Second multinational energy and value conference
Editor(s) Karan, Mehmet Baha
Arslan, Őzgűr
Publication date 2009
Start page 39
End page 41
Total pages 3
Publisher Hacettepe University
Place of publication Instanbul, Turkey
Keyword(s) underpricing
energy
IPOs
Summary The underpricing of initial public offerings (IPOs) has been discussed in the literature for over thirty years. Underpricing is the term used when the issue price of the shares of a company raising public equity capital and seeking to list on a stock exchange is below the closing price of the shares on the first day of listing. As such, underpricing theoretically allows subscribing investors the opportunity of making a return on the day of listing. The international evidence as examined in [4] and updated in [5] has documented that subscribing investors made handsome double-digit' (for example US IPOs - 15.7%, UK IPOs 12%, Turkish IPOs - 13.1 %, Greek IPOs -49.0%) or even triple-digit (for example Chinese IPOs 256.9%) statistically significant positive first day returns, on average. These studies are generally however of industrial company IPOs.

The purpose of this paper is to investigate the underpricing returns of Australian energy IPOs from January 1994 to June 2007. Two previous studies into natural resource IPOs in Australia only made fleeting mention of energy IPOs because of the small sample sizes. [3] identified 2 solid fuel IPOs and 13 oil and gas IPOs (amongst 130 other natural resource IPOs) during 1979 to 1990 and advised average underpricing returns of 106.5% and 47.3% respectively for investors subscribing to these IPOs. [2] investigated 19 energy IPOs (amongst 96 other natural resource IPOs) from 1994 to 1999 and reported an average underpricing return of 8.3%.

The sample set of 134 used in this study is significantly greater than previous Australian studies. These 134 energy IPOs raised over $1.945 billion of public equity capital from January 1994 to June 2007. [3] reports on the importance of the natural resources sectors to Australia's economy and the fact that companies working in these sectors constitute around one third of the entities listed on the Australian Stock Exchange.

This study also follows a highly influential paper in the IPO literature by [I]. They argue that the lower the uncertainty about the value of an IPO, the lower the underpricing needed to attract subscribers. Given the linkage between uncertainty and underpricing, this study seeks to identify the factors that might influence uncertainty and hence underpricing.

The study found that the mean underpricing return for these energy lPOs is 22.8% and statistically significant. The model used to investigate variables that might help explain the level of underpricing in this industry sector is also particularly useful. An important finding in the study for new issuers, underwriters and subscribing investors is that those energy IPO firms that used underwriters had substantially lower underpricing. The other finding that larger issues are likely to have lower underpricing is consistent with prior industrial company IPO studies.
Notes
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Language eng
Field of Research 150299 Banking, Finance and Investment not elsewhere classified
Socio Economic Objective 900199 Financial Services not elsewhere classified
HERDC Research category E3 Extract of paper
HERDC collection year 2009
Copyright notice ©2009, Hacettepe University
Persistent URL http://hdl.handle.net/10536/DRO/DU:30016846

Document type: Conference Paper
Collections: School of Accounting, Economics and Finance
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Every reasonable effort has been made to ensure that permission has been obtained for items included in DRO. If you believe that your rights have been infringed by this repository, please contact drosupport@deakin.edu.au.