Secondary Equity Research Articles

The origin of LYONs: A case study in financial innovation

The origin of LYONs: A case study in financial innovation

Are secondary equity offerings of Black Economic Empowerment (BEE) REITs less underpriced than non-BEE REITs?

PurposeThe purpose of this paper is to contribute to the literature on secondary equity offerings (SEOs) by examining the impact of the Black Economic Empowerment (BEE) policy on secondary equity offering (SEO) pricing dynamics of South African Real Estate Investment Trusts (REITs).Design/methodology/approachWith a sample of 152 SEOs of South African REITs from 2010 to 2020, ordinary least squares (OLS) models, fixed effect models, parametric and non-parametric tests were applied to test for the impact of BEE on the underpricing of SEOs.FindingsSignificant underpricing is discovered in highly compliant (BEE) REITs; in other words, SEOs pricing of BEE compliant REITs are more underpriced compared to non-compliant BEE REITs. With this, BEE compliant REITs and more so, highly compliant BEE REITs in particular leave more money on the table.Practical implicationsThe government is therefore aware of the impact policy interventions play when REITs raise financing through SEOS. With these, highly compliant BEE REITs will need to be more strategic when making BEE compliance decisions as this is shown in our study to impact the underpricing of SEOs.Originality/valueThis is the first study to investigate SEO underpricing for the BEE policy using the South African REITs context.

The Influence of Investors’ Personality on Decision Making in the Secondary Equity Market – Big Five Personality Model

Decision-making in an unfamiliar environment like the stock market is a difficult task, particularly given the immense amount of information and peer pressure. This study aims to analyze the influence of investors’ personality, assessed using the Big Five personality model, on investors’ decision-making in the Indian secondary equity market. Indian secondary equity investors in the city of Chennai were selected as the study population, and data was gathered from a sample of 436 investors using the questionnaire survey method. A Pearson correlation analysis was conducted to study the relationships between investors’ decision-making tools and personality dimensions, and significant correlation relationships were identified. Multiple linear regression was then used to analyze the linear relationship between the returns earned from equity investment and the personality dimensions and decision-making tools, as well as several demographics and financials. The results of the study could help investors better understand their equity decision-making in terms of the influence of their personality and guide them to adopt appropriate decision-making tools to increase their equity returns. Financial advisors could also benefit from this study as it would allow them to correlate their clients’ personalities and decision-making tools and suggest the most appropriate investment strategies.

Does the annual income earned influence the decision-making in the Indian Secondary equity market?

The annual income earned plays a very important role in stock investing as it influences several dimensions of the investment process. The main goal of this research was to examine the role of the annual income earned by the secondary equity investors in the decision- making process. The research is exploratory in nature where a questionnaire survey was conducted on a sample of 436 secondary equity investors residing in the Chennai city of India. The data was analysed using quantitative techniques like ANOVA, Multinomial Logistic Regression, Discriminant and Cross Tabulation. The ANOVA results revealed that except in economy analysis and company analysis, the investors belonging to the various income groups differed in all the other decision-making techniques. When divided in terms of gender and age as well, the results were significant. The Multinomial logistic regression analysis resulted in a robust model which showed that industry analysis, technical analysis, gender*advocate recommendation and gender*equity investment knowledge are significant predictors of the annual income. The Discriminant model developed to predict the returns earned in equity investments showed that only the industry analysis and company analysis have a positive relationship with the equity returns. The demographic and financial profile of the high- and low-income investors were examined in the Cross-tabulation analysis. The main outcomes of the study are (i) older investors are less likely to belong to the low income group compared to the average income group; (ii) the low-income investors are likely to be male investors with decreased equity investment knowledge; (iii) investors who employ industry analysis are more likely to belong to the high income group and those who employ technical analysis are less likely to belong to the high income group compared to the average income group and (iv) investors with more equity investment knowledge are more likely to belong to the high income group compared to the average income group. The results also show that adopting industry analysis and/or company analysis may lead to a higher probability of earning higher returns in the equity market whereas the adoption of economy analysis, technical analysis and/or advocate recommendation lead to lower returns. This study would guide investors and advisors to examine the direct and indirect influences of the income earned. Government bodies and investor associations need to focus on the low income investors who are more vulnerable to financial blunders owing to their financial issues.

RISK PROFILING OF SECONDARY EQUITY INVESTORS FROM THE CHENNAI CITY OF INDIA BASED ON THE BIG FIVE PERSONALITY MODEL

The risk taken by the investor depends on several independent variables like: personality, biological age, investment experience and income. The main aim of this article is to combine all these variables in order to build an exhaustive risk profile on the basis of the Big Five Personality dimensions. The research method applied is exploratory in nature and questionnaire survey method was employed to gather data from 436 secondary equity market investors residing in the Chennai city of India. ANOVA was employed to develop the risk profile. The outcome of the research was an exhaustive risk profile combining all the related variables and a regression model predicting the equity returns. The main conclusions of the study are that the investors with the more of the conscientiousness personality tend to take less risk. This finding was also consistent among the senior investors, high income investors and those with mediocre/ high investment experience. The study also concluded that the agreeable investors with high income/high investment experience, tend to take less risk. Only the young investors with more of the conscientiousness personality tend to take more risk and with more of the extraversion personality tend to take less risk. This study serves as a guidance for advisors to provide appropriate recommendations on the basis of the risk appetite and personality of the investors.

Refining the general equilibrium relation that subsists between stock returns, and each of investors’ risk preferences and information sets

Typically, models of stock prices or returns assume homogeneity of risk preference parameters. This study shows modeling of IPO prices necessarily is with reference to the distribution of risk preference parameters that already are represented in secondary equity markets. Modeling of stock returns is shown predicated only on changes to investors’ information sets, but is required to be robust to each of heterogeneity of risk preference parameters and existence, as an outcome, of representative agents. Non-bindingness of capital constraints facilitates the rational expectation that it is pricing of risk sharing benefits, not raw information, that determines stock prices.

Sustainable Growth of Nonfinancial Firms: An Empirical Examination of Emerging Economies

The classic model of sustainable growth presented by Higgins is extensively used in accounting and finance research. This research empirically examines this model which was suggested to be underestimated in the existing literature. The investigation was performed using data from 2000 to 2015 for seven emerging countries. To find out the mean difference in growth between secondary equity issuing firms and non-issuing firms, we used an independent sample t-test. To identify the factors affecting differences in sustainable growth and realized growth, regression analysis was performed and a panel of seven countries for sixteen years data was used to estimate the panel regression. The study found the Higgins’ model to be underestimated. One of the main factors of underestimation of the model was found to be the secondary equity issue. This factor was observed to be significant in the case of five countries i.e. Pakistan, India, Korea, Indonesia and Brazil while the same was found insignificant in Turkey and China. Also during the examination, firm-specific factors that are important for the underestimation of the SGR (Sustainable Growth Rate) model were detected which include leverage and size, whereas dividend policy and profitability gave mixed results. Our study suggests that firms with secondary equity issues are more likely to have sustainable growth than firms not having secondary equity issues.

Refining the General Equilibrium Relation That Subsists Between Stock Returns, and Each of Investors Risk Preferences and Information Sets

Typically, models of stock prices or returns assume homogeneity of risk preference parameters. This study shows modeling of IPO prices necessarily is with reference to the distribution of risk preference parameters that already are represented in secondary equity markets. Modeling of stock returns is shown predicated only on changes to investors' information sets, but is required to be robust to each of heterogeneity of risk preference parameters and existence, as an outcome, of representative agents. Non-bindingness of capital constraints facilitates the rational expectation that it is pricing of risk sharing benefits, not raw information, that determines stock prices.

Practical Applications of Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors

In <b><i>Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors</i></b>, from the August 2020 issue of <b><i>The Journal of Wealth Management</i></b>, authors <b>R. Renu Isidore (Loyola College), P. Christie (Xavier School of Management)</b>, and <b>C. Joe Arun (Loyola College)</b> examine two factors that influence successful investors in India: their biases and their decision-making tools. The authors measured nine behavioral biases and five decision-making tools and used an analysis of variance test to determine which biases and decision-making tools characterize investors who earn high returns from equity investments. The authors offer their findings as a framework to help equity investors earn good returns and be successful in the market. <b>TOPICS:</b>Wealth management, equity portfolio management, emerging markets

Do Individual Investors Prefer a Price Range in the Equity Markets?

This article focuses on a wealth-constrained individual investor preference for lower price ranges in the Indian secondary equity market, using stock-split data to gauge the effects of lower price ranges on individual ownership. The hypothesis is that individual investors operate within a price range of choice. The overall findings address three specific contributions. First, the impact of various post-split price (PSP) bands on both individual and institutional investors is assessed. Second, a specific PSP range is estimated that triggers a shift in ownership from institutional investors to individual investors. Third, the article shows the firm-specific characteristics for companies that target lower-priced stocks. <b>TOPICS:</b>Fundamental equity analysis, emerging markets <b>Key Findings</b> ▪ The lowest bands of post split price (PSP) have maximum positive impact on ownership of individual shareholders. ▪ The shift in ownership from institutional investors to individual investors happens at the lowest bands of post split price (PSP). ▪ Companies having lower price-to-book ratios and higher market capitalization target lower market prices (PSP) to attract individual shareholders post split.

The Behavior of the Various Personalities of Secondary Equity Investors: Big Five Personality Model

The personality of investors influences their behavior in terms of the behavioral biases exhibited and the returns earned in equity investments. By employing the Big Five personality model, the personality types of a sample of 436 secondary equity investors residing in Chennai, India, are identified, using the questionnaire survey method. The specific behavioral biases—mental accounting, anchoring, gambler’s fallacy, availability, loss aversion, regret aversion, representativeness, and overconfidence—are measured using scenario-based questions. Pearson correlation analysis is performed to identify the biases most likely to be displayed by each investor personality type. The personality dimensions of successful investors are determined using analysis of variance tests. The agreeableness and conscientiousness of investors yield high returns in the secondary equity market. A robust discriminant model is developed, with the investors’ financials and personality dimensions as predictors to discriminate between high and low returns. Wealth managers and financial advisers can apply the findings of the current article to customize trading strategies for their clients (investors) based on investor personality type. Such advisers can diplomatically caution clients to beware of the biases that they are likely to exhibit based on personality type. Financial managers and advisers can also focus more personalized attention on investor personalities that earn lower returns. <b>TOPICS:</b>Wealth management, emerging markets, statistical methods <b>Key Findings</b> ▪ The personality of investors influences their behavior in terms of the behavioral biases exhibited and the returns earned in equity investments. ▪ Investors of each personality type are more likely to exhibit certain behavioral biases. ▪ Agreeable and Conscientious investors yield high returns in the secondary equity market.

Practical Applications of Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors

In <b><i>Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors</i></b>, from the August 2020 issue of <b><i>The Journal of Wealth Management</i></b>, authors <b>R. Renu Isidore (Loyola College), P. Christie (Xavier School of Management)</b>, and <b>C. Joe Arun (Loyola College)</b> examine two factors that influence successful investors in India: their biases and their decision-making tools. The authors measured nine behavioral biases and five decision-making tools and used an analysis of variance test to determine which biases and decision-making tools characterize investors who earn high returns from equity investments. The authors offer their findings as a framework to help equity investors earn good returns and be successful in the market. <b>TOPICS:</b>Wealth management, equity portfolio management, emerging markets

The Effect of Unscheduled News on Systematic Risk

I use intraday prices to explore the time-varying characteristic of the systematic risk around unscheduled firm-level news writing about secondary equity offering (SEO) programs. I show that, around this information flow, the beta drops by a statistically significant and economically important amount. Firm-level news about an SEO program leads to a sharp decrease in the company's systematic risk of 33.4% on the day that the news is reported. These results are consistent with investors' rationality and managers' signals about company valuation. That is, investors sell overvalued firms in favour of more fairly valued companies. Further, the results show that the sentiment of news does not explain the change in the systematic risk. So, investors should closely monitor news taxonomy to understand their risk exposure around information flow. Finally, I show that, through the systematic risk variation documented in this paper, it is possible to explain more than 50% of the negative abnormal return observed on the SEO announcement date.

Influence of the biological age of the investor on decision-making in the secondary equity market

PurposeDecision-making in the equity market has been a challenging task for investors belonging to all age groups. This study aims to find linkages between the decision-making techniques in the equity market and the biological age of the investor.Design/methodology/approachThis is an exploratory study and by surveying a sample of 436 secondary equity investors residing in the Chennai region of India, the study measured the decision-making techniques. Using the ANOVA test, the decision-making technique mostly used by investors belonging to an age category was determined. Further, the linkages were investigated in isolation for the male and female investors. By using regression analysis, a model was developed to predict the actual equity return. The financial characteristics of the various age groups were also analyzed using cross-tabulation.FindingsThe results of the study show that the age of the investor plays an important role in the choice of decision-making technique used. The younger investors, who earn the lowest returns were less likely to use industry analysis but more likely to use technical analysis and advocate’s recommendation. Specifically, the younger male investors were less likely to use industry analysis and more likely to use the advocate’s recommendation. The younger female investors were also less likely to use industry analysis. The middle-aged respondents, who earn the highest return were less likely to use technical analysis and advocate’s recommendation owing to lower means. Specifically, the middle-aged male investors were less likely to use the advocate’s recommendation and technical analysis. Then, middle-aged female investors were more likely to use industry analysis.Originality/valueThe findings would be beneficial for financial advisors and wealth managers to suggest age-appropriate strategies for the various investor groups. This age-based profiling of investors would make investors aware of their decision-making techniques and encourage them to make more rational decisions.

Private equity exits after IPOs

We examine post-IPO exits of private equity sponsors of portfolio firms via follow-on secondary equity offerings and third party takeovers. Sponsors retain considerable ownership in listed portfolio firms for lengthy periods after IPOs, well beyond lockup expiration. After private equity post-IPO secondary offerings, corporate profitability is strongly superior to benchmark firms, indicating portfolio firms are successfully prepared for private equity's subsequent exit. Nevertheless, share prices fall at offering announcements, reflecting the failure of private equity sponsors to exit stakes in listed entities at the high premiums paid in third party takeovers, premiums that are invariably shared equally with public shareholders.

How and Why Do Managers Use Public Forecasts to Guide the Market?

We compare public managerial forecasts with internal forecasts collected by a large-scale government survey. Although both forecasts are mandatory, predict corporate investment, and are overoptimistic on average relative to realizations, public forecasts tend to be pessimistic relative to internal forecasts. Managers under more shareholder pressure and with higher pay-performance sensitivity are more publicly pessimistic. The relative pessimism predicts higher stock returns, positive earnings surprises, and more executive compensation. However, managers decrease pessimism when issuing secondary equity offerings and become publicly optimistic when they are financially constrained, consistent with an inter-temporal trade-off between beating managerial targets versus maintaining financial flexibility.

Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors

This study aims to determine the biases exhibited by successful investors who earn high returns in equity investments and also the decision-making tools employed by them. By employing a sample of 436 secondary equity investors residing in the Chennai city of India, nine behavioral biases and five decision-making tools were measured. ANOVA test was done to compare the means and identify the biases, which were higher or lower for the successful investors, and the decision-making tools employed by them. The actual return earned, i.e., the actual realization of annual capital appreciation in equity investment in the past two years, was used as proxy for the success of the investor. The study identifies the biases and the decision-making tools that are least and most likely to be exhibited/employed by the successful investors who earn high returns from equity investments. The findings of the study would be beneficial for the equity investors who aim to maximize equity returns and minimize irrationality. Wealth managers and financial advisors would also help their clients with the right guidance to choose the appropriate decision-making techniques and be aware of the biases to improve the performance in the market. TOPICS:Wealth management, emerging markets, equity portfolio management Key Findings • The investors who earn high returns in equity investment are less likely to exhibit the mental accounting, anchoring, availability, representativeness, loss aversion and regret aversion biases. • The investors who earn high returns in equity investment are more prone to the overconfidence bias and the optimism bias. • The investors who earn high returns in equity investment are more likely to employ industry analysis and less likely to employ technical analysis or advocate’s recommendation.

Impact of Monetary Policies on the Exchange Rate and Global Trade Evidence from Ghana

The impact of monetary policies and their implementation by the exchange rate covered the economic condition of Ghana. The social inclusion and conversion factors change the implemented policies of nations, where the real price, trade, technology, a price rate, and price level of ratio take an important part of growth. The reform of the financial sector favors the free-floating of the exchange rate and global trade under the premise of flexible exchange rates. The tragedy of country growth and exchange rate toward a trajectory of growth with the growth-enhancing effect through social inclusion, conversion factors, price level ratio, exchange rate, merchant rate, export, and trade services. The research study is based on the secondary study and social inclusion equity indicators with public resources, building human resources and social protection for economic development has determined. Different evidence and trade indicators classify the monetary policies. The significant influence of growth and internal policies has affected trade and exchange rates with growth and reserve policies. The results have computed by linear regression and it proved that social inclusion and alternative conversion factors impact on global trade and create short term binary relationships.

Security regulations, access to capital markets, and firm performance: Evidence from China

AbstractThis study explores the cost of security regulations in China, where firms are required to meet a certain profitability benchmark before applying for permission to raise more equity via secondary equity offerings (SEOs). Using a difference‐in‐differences setting, we show that firms affected by the regulation (i.e., firms with high external financing demands (EFD) but profitability lower than the regulatory requirement) significantly underperform their counterparts, while unaffected firms do not. The affected firms’ performance decline increases (decreases) when the requirement of profitability is more (less) restricted. Consistently, the three‐day cumulative abnormal return (CAR) of firms with high EFD is significantly negative (positive) when the regulation is tightened (loosened). Our study provides evidence on how the cost of regulation affects companies that have growth opportunities.

Capital structure adjustment and market reaction following seasoned equity offerings

AbstractThis paper analyzes the market reaction towards capital structure adjustment through seasoned equity offerings in the United States. It recognizes that capital structure and equity mispricing are closely associated with seasoned equity offering. We specifically propose that if the trade‐off theory holds and firms follow target capital structures, then, firms that are overlevered would effectively exploit an overvalued equity in a cost‐effective adjustment of their capital structures through seasoned equity offerings. We also test how the market then reacts to such capital structure adjustment attempts. Controlling for other motives of seasoned equity offerings in a sample of 1,725 secondary issues by 1,016 U.S. nonfinancial firms from 2004 to 2013, we found that firms that were ex ante overlevered and overvalued were more likely to announce a seasoned equity offering. As regards the market reaction to such capital structure adjustments, it is found that the market favorably reacted in both the short term and long term, as evidenced by positive 3‐day cumulative abnormal returns and buy‐and‐hold abnormal returns, respectively. Moreover, post‐event evidence suggests that on the average, overlevered firms reduced their deviations from the target and that their leverage levels mainly stayed around the targets until at least 3 years after the secondary equity issues.