The long-run performance of initial public offerings on the Johannesburg Stock Exchange

Abstract

This report examines the long-run performance of Initial Public Offerings on the Johannesburg Stock Exchange. The primary objective is to calculate the cumulative average abnormal returns using simpler models such as a market model or a single parameter CAPM and then to introduce a risk adjusted style model to determine whether the significant returns would disappear. These risk factors include the size of the firm, a value versus growth factor as well as an adjustment for the resource focussed Johannesburg Stock Exchange. The secondary objective of this report is to calculate the returns of event firms engaging either a prestigious underwriter or those that do not as well as the calculation of the returns of large firms and non-large firms. Event study methodology was used on the 48 Initial Public Offerings on the Johannesburg Stock exchange from 01 January 2006 to 31 May 2016 that formed part of the All Share Index. The study determined the cumulate average abnormal returns over a 36 month period after the event date and was tested at the 5% level of significance through the use of a Monte Carlo bootstrap simulation. The results show that the cumulative average abnormal returns found using simpler methods were in fact significant and that these significant returns disappear when a risk adjusted style model was introduced. Further, the results showed that using either a prestigious underwriter or a non-prestigious underwriter yields insignificant cumulative average abnormal returns and