Abstract
This paper examines whether fractional ownership and underpricing serve as signals of firm value in the Australian new issues market. While international studies have provided emperical support for the signaling hypothesis, there is a paucity of Australian evidence in this area. Instead, empirical tests of hypotheses proposed as explanations of the underpricing phenomenon have featured prominently in the Australian studies. This paper finds evidence of a positive relationship between firm value and fractional ownership. Our results also show that although the positive relationship between fractional ownership and firm value is robust, irrespective of whether market volatily and industry effects have been controlled for, the assumption of linearity of the relationship may not be appropriate. The relationship between underpricing and firm value is, however, ambiguous.
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