Performance of stocks after repair issues : An empirical analysis of the stock performance of firms undergoing repair issues on the Oslo Stock Exchange : Evidence from 2012-2022
Master thesis
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https://hdl.handle.net/11250/3098148Utgivelsesdato
2023Metadata
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- Master Thesis [4505]
Sammendrag
In recent years, private placements have emerged as the preferred method of raising equity
on the Oslo Stock Exchange (OSE). Private placements have a discriminatory character,
and dilutes the non-participating shareholders. To offset this dilution, and in line with
their principle of equal treatment, the OSE has established a requirement for companies
to consider subsequent repair issues. Our findings indicate that these repair issues are
implemented in 20% of the instances and are not apportioned on a pro-rata basis. This
study explores the abnormal returns of firms that have conducted private placements and
subsequent repair issues listed on the OSE. We employed the Jensen's alpha calendar-time
portfolio method with the Fama-French three-factor model as a benchmark to analyze
the performance of these firms. Additionally, we tested the returns using the buy-andhold
reference portfolio method, where the reference portfolio comprised of peer firms
listed on the OSE with similar TRBC codes, market capitalization, and book-to-value
multiples. In this methodology, we also evaluated the returns incorporating the share price
discount offered. With a sample size of 186 companies that completed private placements
and repair issues, We find some contradicting results regarding the two methodologies.
Specifically, the Jensen's alpha method detects negative long-term returns in the full
sample, a finding not mirrored by the buy-and-hold method, which instead yields no
significant results. When we segment the data into sub-samples, neither methodology
identifies significant returns. Nevertheless, the picture changes when we shift our focus
to participating investors. In this context, we observe numerous short to medium-term
positive returns, with significance at the l% level, painting the possibility for favorable
returns for investors. Our findings provide valuable knowledge for the OSE. The results
suggests that repair issues, rather than just being tools to alleviate the dilution effect
resulting from private placements, could also serve as potentially profitable investment
opportunities for those who choose to participate.