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

Abstract

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.