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Article
Publication date: 5 March 2018

Michael Nadler

The purpose of this paper is to close the transparency gap by comparing ex ante and ex post performance disclosure, thus providing important conclusions regarding the…

Abstract

Purpose

The purpose of this paper is to close the transparency gap by comparing ex ante and ex post performance disclosure, thus providing important conclusions regarding the transparency of this important German market segment.

Design/methodology/approach

Closed-ended real estate funds (CEREFs) are one of the biggest segments of unlisted private equity funds in Germany. CEREFs have a central “profitability promise” that is based on ex ante forecasts given in the prospectus. Typically, equity is tied to these investments for up to 20-30 years, leaving investors highly insecure whether their expectations will be fulfilled and fund managers actually achieve prospected performances ex post.

Findings

The performance variance analysis of all German CEREFs outstanding during the global financial crisis reveals that prospect-performance disclosures as well as prospect-performance variances cause substantial problems in Germany due to overestimation biases of many fund managers.

Research limitations/implications

As typical for the recent scholarly debate, also the past disclosure practice in Germany prohibits a long-term performance analysis, unless researchers apply instruments of modern investment analysis like comprehensive financial plans (“Visualisation of Financial Implications)”.

Practical implications

The transparency developments in CEREF-reporting of the last decade deliver precise recommendations regarding the internal and external performance variance analysis, risk-profiles and stress tests for the future fund management.

Social implications

The introduced methodology would increase transparency in the segment of CEREF and, thus, improve investor protection. Since private households in Germany mainly acquire these funds, this is a contribution to sustainability in private asset management.

Originality/value

The paper develops a new methodological framework for performance measurement of unlisted funds. It then assesses for the first time the impact of transparency and trust on fund performances by applying a performance variance analysis.

Article
Publication date: 21 September 2012

Ranajit Kumar Bairagi and William Dimovski

The purpose of this paper is to investigate the total direct costs of raising external equity capital for US real estate investment trust (REIT) initial public offerings (IPOs).

Abstract

Purpose

The purpose of this paper is to investigate the total direct costs of raising external equity capital for US real estate investment trust (REIT) initial public offerings (IPOs).

Design/methodology/approach

The study provides recent evidence on total direct costs for a comprehensive dataset of 125 US REIT IPOs from 1996 until June 2010. A multivariate OLS regression is performed to determine significant factors influencing the level of total direct costs and also underwriting fees and non‐underwriting direct expenses.

Findings

The study finds economies of scale in total direct costs, underwriting fees and non‐underwriting expenses. The equally (value) weighted average total direct costs are 8.33 percent (7.52 percent), consisting of 6.49 percent (6.30 percent) underwriting fees and 1.87 percent (1.22 percent) non‐underwriting direct expenses. The study finds a declining trend of total direct costs for post 2000 IPOs which is attributed to the declining trend in both underwriting fees and non‐underwriting direct expenses. Offer size is a critical determinant for both total direct costs and their individual components and inversely affects these costs. The total direct costs are found significantly higher for equity REITs than for mortgage REITs and are also significantly higher for offers listed in New York Stock Exchange (NYSE). Underwriting fees appear to be negatively influenced by the offer price, the number of representative underwriters involved in the issue, industry return volatility and the number of potential specific risk factors but positively influenced by prior quarter industry dividend yield and ownership limit identified in the prospectus. After controlling for time trend, the paper finds REIT IPOs incur higher non‐underwriting direct expenses in response to higher industry return volatility prior to the offer.

Originality/value

This paper adds to the international REIT IPO literature by exploring a number of new influencing factors behind total direct costs, underwriting fees and non‐underwriting direct expenses. The study includes data during the recent GFC period.

Article
Publication date: 19 April 2013

Bill Dimovski

This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.

Abstract

Purpose

This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.

Design/methodology/approach

Using a methodology similar to Owen and Suchard, and Armitage, a sample of 62 A‐REIT rights issues during 2001‐2009 is analyzed. A variety of potential factors influencing discounts and underwriting fees are explored.

Findings

Over A$20 billion was raised by A‐REIT rights issues during 2001‐2009 (this around three times that raised through A‐REIT initial public offerings during the same period). The mean offer price was discounted around 9.5 percent from the current market price and underwriting fees averaged 2.9 percent of gross proceeds raised – both substantially less than for industrial rights issues. The standard deviation of daily returns for the past year appears to influence the percentage discount offered to subscribers. This volatility was particularly noticeable in 2008 and 2009, during the global financial crisis, where new issues were discounted substantially so as to raise equity to repay debt. This historical risk variable appears paramount in determining the discounts to subscribers and fees to underwriters.

Practical implications

A‐REITs seeking to minimize the discounts offered to subscribers and to minimize their underwriting costs with rights issue equity capital raisings must first minimize their share price volatility.

Originality/value

This paper adds to the international costs of capital raising literature of REITs by examining such costs with A‐REIT rights issues and is the first paper to examine factors influencing these costs.

Details

Journal of Property Investment & Finance, vol. 31 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 3 February 2012

Ranajit Kumar Bairagi and William Dimovski

The purpose of this paper is to investigate factors influencing the underwriting discount for US Real Estate Investment Trust (REIT) Seasoned Equity Offerings (SEOs).

Abstract

Purpose

The purpose of this paper is to investigate factors influencing the underwriting discount for US Real Estate Investment Trust (REIT) Seasoned Equity Offerings (SEOs).

Design/methodology/approach

The study provides new evidence on determinants of underwriting discounts with a comprehensive dataset of 783 US REIT SEOs from 1996 until June 2010. Ordinary least squares regressions are performed to estimate the effect of the level of representative underwriting along with other potential factors on underwriting discounts.

Findings

The study complements the well‐documented notion of the economies of scale in SEO underwriting discounts. The equally (value) weighted underwriting discounts averaged 4.21 per cent (4.10 per cent) with a declining trend over time. The findings of this study show the statistically and economically significant negative effect of the level of representative underwriting on the underwriting discounts, as well as the significance of the structure of underwriting syndicate in determining the underwriting discounts. The findings suggest that issuers can minimize the costs of raising secondary equity capital by optimally allocating the underwriting business among the underwriters.

Originality/value

This paper adds to the international REIT SEO literature by exploring new evidence behind underwriting discounts. The study includes data before and after the REIT Modernization Act 1999 and during the recent global financial crisis period.

Article
Publication date: 1 January 2004

Susan S. Krawczyk

During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had…

Abstract

During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had triggered a more in‐depth investigation into mutual fund marketing and compensation practice by securities regulators, Congress, and the states. This article focuses on the regulation of sales compensation practices primarily as it affects a broker‐dealer selling mutual funds in the retail market. It addresses the regulatory framework for three key compensation practices: (1) the use of non‐cash compensation in connection with mutual fund sales; (2) marketing and compensation arrangements providing enhanced compensation to a selling firm as well as to its sales representatives for the promotion of certain fund securities over others, such as proprietary funds over non‐proprietary funds, preferred funds over non‐preferred funds, and Class B shares over Class A shares; and (3) the use of commissions for mutual fund portfolio trades as an additional source of selling compensation for selling firms, a practice sometimes referred to as ”directed brokerage.“

Details

Journal of Investment Compliance, vol. 4 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 May 2007

M. Ariff, Walayet A. Khan and H. Kent Baker

This study examines short‐term stock price reactions to announcements of equity rights offerings in Singapore between 1983 and 2003 and investigates whether economic…

Abstract

This study examines short‐term stock price reactions to announcements of equity rights offerings in Singapore between 1983 and 2003 and investigates whether economic factors lead to different price reactions. The results show that the cumulative abnormal returns (CARs) associated with rights issues differ significantly across economic conditions at the time of issuance. Rights issues typically result in significantly large positive CARs during periods of economic growth but small positive but insignificant CARs during economic downturns. The CARs vary positively with Tobin’s q‐ratios, which indicate the availability of positive net present value investment opportunities of the firms issuing the rights. Our major finding is that the price reaction of Singapore firms to equity rights offerings is sensitive to economic conditions at the time of the rights issues.

Details

Journal of Asia Business Studies, vol. 1 no. 2
Type: Research Article
ISSN: 1558-7894

Keywords

Case study
Publication date: 20 October 2010

Samir K. Barua and Sobhesh Kumar Agarwalla

Disinvestment of government shareholding in Public Sector Undertakings, through Public Offers, is a common occurrence in many economies. This case describes such a process…

Abstract

Disinvestment of government shareholding in Public Sector Undertakings, through Public Offers, is a common occurrence in many economies. This case describes such a process of disinvestment of the government of India's stake in a large power utility, National Thermal Power Corporation (NTPC) in India. In addition to process details, the case contains information and data that make it possible to rigorously analyze the response of market participants and the resulting changes in the prices of shares of NTPC before, during and after the public offer.

Details

Indian Institute of Management Ahmedabad, vol. no.
Type: Case Study
ISSN: 2633-3260
Published by: Indian Institute of Management Ahmedabad

Keywords

Article
Publication date: 2 March 2015

Bill Dimovski

Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred…

453

Abstract

Purpose

Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred since then. The purpose of this paper is to introduce and include the A-REIT IPOs over the last ten years and examine the cost and the factors influencing the percentage underwriting and percentage total direct costs by A-REITs IPOs. The study also investigates specifically whether the utilization of an underwriter (who guarantees the success of the capital raising) rather than a stockbroker (who does not guarantee such success) costs significantly more.

Design/methodology/approach

The study examines 87 A-REIT IPOs from January 1994 until December 2013. An OLS regression is performed to identify significant influencing factors on percentage underwriting costs and percentage total direct capital raising costs.

Findings

The study finds that larger capital raisings and those with large investor or institutional involvement identified in the prospectus are significant in reducing underwriting costs. The study does not find that underwritten IPOs are significantly more expensive (or cheaper) than those not underwritten. Additionally, the size of the issue, whether the firm offers stapled securities (is internally managed) and has higher net asset to issue price characteristics reduces the total cost of underwritten IPOs.

Practical implications

The paper provides information to new A-REIT issuers, underwriters and advisors broadly on new issue costs and on factors influencing the IPO issue costs.

Originality/value

The study is the first to examine the costs of A-REIT IPO capital raising data in the years prior to and following the recent global financial crisis period.

Details

Journal of Property Investment & Finance, vol. 33 no. 2
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 20 February 2009

Michael Aitken, Frederick H. deB., Thomas H. McInish and Kathryn Wong

The purpose of this paper is to investigate the cross‐sectional determinants of the role of the underwriter in aftermarket price discovery.

Abstract

Purpose

The purpose of this paper is to investigate the cross‐sectional determinants of the role of the underwriter in aftermarket price discovery.

Design/methodology/approach

The paper estimates Gonzalo‐Granger common factor weights across underwriter and non‐underwriter execution channels in the IPO aftermarket and investigates the cross‐sectional determinants of these CFWs.

Findings

The first novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the number of supplier and customer contracts reported in the prospectus. Second, the underwriter's role in price discovery declines when the IPO is first in a new technology or product space. These findings indicate that the verification process, not de novo information production, is the key function of the underwriter.

Research limitations/implications

Research design is applicable to IPOs in the USA and elsewhere.

Originality/value

Previous research examining IPO aftermarket trading has been largely limited to the first day of trading. The paper contributes to the small but growing literature that examines the role of the underwriter beyond this period.

Details

International Journal of Managerial Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 6 June 2016

Mohammed Abdullah Ammer and Nurwati A. Ahmad-Zaluki

Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of…

1371

Abstract

Purpose

Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of underwriter’s market share and spread on the underpricing of IPOs; and second, it investigates the effect of management earnings forecasts bias and accuracy on the underpricing of IPOs.

Design/methodology/approach

A sample of 190 Malaysian IPOs listing on the main market of Bursa Malaysia from January 1, 2002 to February 29, 2012 was used and collected data were analyzed through univariate analysis and pooled ordinary least squares regression.

Findings

The empirical evidence shows that IPOs underwritten by underwriters as having high market share and charging low underwriting spread experience higher level of underpricing. The paper also finds that IPOs issued more biased earnings forecasts are related with severe underpricing. Finally, this paper reveals that the more accurate the earnings forecasts are, the more minimized will be the asymmetric information and hence, the less will be IPO underpricing.

Practical implications

The paper has some implications for policy makers, investors and underwriters. First, this study offers some insights for policy makers who are responsible for Malaysian financial markets current reforms. Further, knowing the importance of the economic outcomes of the earnings forecasts on underpricing for policy makers, they may adopt the findings in their discussion of costs of litigation and potential modifications in the requirements of issuing earnings forecasts. For the investors, findings may improve their understanding of equity valuation and for the underwriters, it would assist them in identifying underwriting cost.

Originality/value

This paper is considered the first study to extend IPO literature by investigating the relationships between underwriter’s market share, underwriter’s spread, earnings forecasts bias, earnings forecasts accuracy and IPO underpricing in an emerging country, such as Malaysia.

Details

International Journal of Managerial Finance, vol. 12 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

1 – 10 of 273