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Article
Publication date: 5 September 2022

Joseph Oscar Akotey, Godfred Aawaar and Nicholas Addai Boamah

This research explores to answer the question: What accounts for the substantial underwriting losses in the Ghanaian insurance industry?

Abstract

Purpose

This research explores to answer the question: What accounts for the substantial underwriting losses in the Ghanaian insurance industry?

Design/methodology/approach

Thirty-four (34) insurers' audited financial reports covering the period of 2007 to 2017 were analysed through dynamic panel regression to uncover the underlying causes of high underwriting losses in the Ghanaian insurance industry.

Findings

The findings indicate that efforts at increasing market share by overtrading add no value to insurers underwriting profitability. The underwriting risk suggests that the industry charges disproportionately too small premiums for the risks it underwrites. This may indicate under-pricing by some insurers to grow their customer base.

Practical implications

The findings have implications for managerial efficiency and risk management structures that align compensation with underwriting efficiency.

Originality/value

The association between managerial preference and the underwriting performance of insurers in emerging markets has rarely been researched. This study responds to this knowledge challenge.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

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…

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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: 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: 1 March 2019

Huaili Lyu and Conghui Yang

The purpose of this paper is to examine the certification and monitoring motivations of third-party underwriting and its effects on credit spreads and earnings management…

Abstract

Purpose

The purpose of this paper is to examine the certification and monitoring motivations of third-party underwriting and its effects on credit spreads and earnings management of bank issuers.

Design/methodology/approach

Ordinary least squares is used to examine the certification and monitoring effects of third-party underwriting. Furthermore, the Heckman two-stage estimation method is used in controlling the endogeneity of sample selection.

Findings

The authors find that financial bonds underwritten by third-party underwriters bear lower credit spreads due to their credibly ex ante certification and effectively ex post monitoring compared with self-underwriting. Moreover, the certification of third-party underwriters can help to select good quality bond issuers with lower earnings management, and the monitoring function also plays an essential role in constraining the behavior of earnings management after the bond issues.

Research limitations/implications

The findings in this study suggest that underwriting types (third-party underwriting) will affect financial bond yields and bank issuers’ earnings management.

Practical implications

On the one hand, the authors should encourage third-party underwriters to actively promote the certification and monitoring functions. For example, given commercial banks the chance to be underwriters when the bond issuers are investment banks, which is not allowed now in China’s financial bond market. On the other hand, the authors should cut off the quid pro quo relations within third-party underwriting because such relations will reduce the certification and monitoring effects of third-party underwriters.

Originality/value

This is the first study to distinguish the certification and monitoring effects by using unique data from China’s financial bond market. And the authors further investigate the adverse effects of quid pro quo relations (hiring each other as lead underwriters) on the certification and monitoring effects of third-party underwriters.

Details

China Finance Review International, vol. 10 no. 1
Type: Research Article
ISSN: 2044-1398

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: 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: 1 December 2002

Nancy L. Beneda

This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by…

Abstract

This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by non‐Section 20 underwriters (investment houses). Consistent with a ‘net certification effect’ for banks, corporate equity IPOs underwritten by Section 20 subsidiaries have lower underpricing than those underwritten by investment houses. Secondly, commercial banks brought a relatively larger proportion of small equity IPO issues to market, during the period of this study. Contrary to the contention that universal banking restricts the availability of financing to small firms, bank underwriting appears to benefit small firms. Further, Section 20s do not increase underwriting fees to offset the effect on potential profits from lower underpricing. This study also finds that the focus of Section 20 on small IPOs results in higher quality for the IPOs they underwrite, as indicated by a lower standard deviation of underpricing.

Details

Journal of Financial Regulation and Compliance, vol. 10 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 July 2011

Liu Jianghui

The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It…

Abstract

Purpose

The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It contributes to the literature by filling the gap and providing evidence that institutional and non‐market factors could affect listed companies' decisions to switch their lead underwriters in the Chinese capital market.

Design/methodology/approach

This paper employs a numerical measure of listed companies' loyalty to evaluate their frequency of switching lead underwriters, and employs a Logit model and an OLS model to identify the key determinants of switching lead underwriters by Chinese listed companies.

Findings

It is observed that the frequency of switching lead underwriters is very high among Chinese listed companies for their seasoned offerings. It is also found that underwriters' deficient reputation and the lack of industrial experience, together with the depreciation of relationship‐specific assets, could have important impacts on lead underwriters being frequently switched in China. Besides, the frequent switches of lead underwriters could also be attributable to the non‐market supervision and regulatory influences by Chinese authorities over the security underwriting market.

Originality/value

This paper could help further the understanding of the factors that could explain the listed companies' frequent switches of their lead underwriters for their seasoned offerings in China. In addition, this paper has policy implications on how to improve the listed companies' loyalty for regulators in China. These implications could help improve the regulatory environment and promote the overall performance of the Chinese security underwriting market.

Article
Publication date: 23 January 2019

Ning Wang and Maryna Murdock

This paper aims to revisit the assumption of the cyclicality of the property-liability insurance market and identify a scenario in which the so-called underwriting cycles…

Abstract

Purpose

This paper aims to revisit the assumption of the cyclicality of the property-liability insurance market and identify a scenario in which the so-called underwriting cycles are unpredictable, according to a dynamic cash flow model which generates non-cyclical output dynamics.

Design/methodology/approach

This paper is on the intersection of real business cycle models and financial cycles. The authors construct a dynamic model of an insurer’s cash flows with stochastic loss shocks and capacity constraints, in which loss shocks have a dual impact on both underwriting profits and access to external capital. They simulate the insurer’s optimal output responses to loss shocks, including output movements in underwriting coverage and external capital, to explore the source of unpredictable underwriting cycles through linear quadratic approximation in the model economy.

Findings

The authors find that the effect of loss shocks on the insurer’s cash flows could spread out and amplify over time because of the dynamic interaction between its underwriting capability and ability to raise external capital. This dynamic interaction can generate a non-cyclical pattern of changes in underwriting coverage and access to external capital in the benchmark economy. Applied to different experimental economies, the simulation results reveal that the determinants of the level of output fluctuations include the size of loss shocks, the sensitivity of capital market to loss shocks and the tightness of capital market.

Originality/value

To the best of the authors’ knowledge, there has been no attempt to study insurance output cyclicality with a dynamic cash flow model based upon the real business cycle literature, in which the dynamic interaction between underwriting and access to external capital because of loss shocks has an amplifying effect on output markets. This paper contributes to the current body of research by being able to simulate and show the insurance output dynamics resulting from the amplifying effect under capacity constraints.

Details

The Journal of Risk Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 21 November 2016

Chao Chen and Xinrong Wang

The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and…

Abstract

Purpose

The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and further investigates the role of ownership and political connection.

Design/methodology/approach

The methodology includes three models. Model 1 empirically investigates the effect of underwriter’s reputation on underwriting fee. Model 2 studies the effect of sponsoring representative’s reputation on underwriting fee. Model 3 further examines the effect of underwriter’s reputation and sponsoring representative reputation on the underwriting fee controlling for the impact of ultimate controlling ownership and political connection.

Findings

The study documents that underwriters’ and sponsoring representatives’ reputation can result in reputational premiums. In the IPO of state-owned enterprises (SOEs), the reputation of underwriters and sponsoring representatives does not significantly affect the underwriting fees. In the IPO of non-state-owned enterprises (NSOEs), there is a significantly positive correlation between underwriters’ and sponsoring representatives’ reputation and underwriting fees. Further research results show that, on the one hand, the effect of underwriters’ and sponsoring representatives’ reputation on underwriting fees is not significant in the IPO of NSOEs with political connection. On the other hand, underwriting fees are positively associated with underwriters’ and sponsoring representatives’ reputation in the IPO of NSOEs without political connection.

Research limitations/implications

The sponsoring representative’s fee is not disclosed separately, which makes it difficult to distinguish the incremental effect from underwriter’s services and reputation.

Practical implications

NSOEs relative to SOEs are more likely to pay higher underwriting fees for hiring underwriter and sponsoring representative with better reputation during the process of IPO.

Social implications

The reputation of underwriter and sponsoring representative does not matter to SOEs but does matter to NSOEs. However, NSOEs’ political connection affects underwriter fees.

Originality/value

This paper provides new evidence of sponsoring representatives’ reputation and political connection on the underwriting fees in the IPO in Chinese SOEs and NSOEs.

Details

China Finance Review International, vol. 6 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

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