The pricing of infrastructure initial public offerings: evidence from Australia

Abstract

This paper explores first‐day returns on infrastructure entity initial public offerings (IPOs) in Australia from 1996 to 2007. While a good deal has been written on the first‐day returns of industrial and mining company IPOs and Real Estate Investment Trust IPOs, first‐day returns of infrastructure entity IPOs have yet to be reported in the literature. The study uses ordinary least squares regression analysis to identify factors that might influence the percentage first‐day returns theoretically available to investing subscribers and factors that might influence the aggregate amount of money left to subscribers by issuers. The study finds that first‐day returns, on average, are not significantly different from zero. There is evidence, however, that suggests higher dividend yields and higher percentage direct costs of capital raising influence these first‐day returns. The study also finds that infrastructure entity IPOs that seek to raise more equity capital leave less money on the table for subscribing investors.

Keywords:

• infrastructure funds
• IPOs
• underpricing