Initial public offering in ports: The determinants of the long-term aftermarket performance

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1 Initial public offering in ports: The determinants of the long-term aftermarket performance Author(s): G. Satta, T. Notteboom, F. Parola, L. Persico This paper had been presented at: IAME Conference 2016, August 2016, Hamburg, Germany This is a pdf file of an unedited manuscript that, in a modified form, has been accepted for publication or has already been published. For convenience of the visitors of this site, an early version of the manuscript provided. All legal disclaimers that apply to the journal pertain. Please site this article as: Satta, G., Notteboom, T., Parola, F. and Persico, L. (2016) Initial public offering in ports: The determinants of the long-term aftermarket performance. Paper presented at IAME Conference 2016, August, Hamburg, Germany This article was uploaded to PortEconomics.eu On: 8-Sep-16 Porteconomics.eu is a non-profit, web-based initiative aiming to advance knowledge exchange on seaport studies. Developed by researchers affiliated to various academic institutions throughout Europe, it provides freely accessible research, education and network-building material on critical issues of port economics, management and policies PLEASE SCROLL DOWN FOR MANUSCRIPT

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3 Initial public offering in ports: The determinants of the long-term aftermarket performance Giovanni Satta, Francesco Parola, Luca Persico University of Genoa, Department of Economics and Business, Italy Theo Notteboom, Dalian Maritime University, Transportation Management College, China Extended Abstract Financial markets, traditionally, have been a secondary source of funds for the port industry, compared with alternative financial resources such as retained earnings, governmental support and corporate bank loans (Stopford, 2009). Nonetheless, the amount of money required for upgrading extant infrastructures, developing mega-projects and fuelling private terminal operators overseas expansion made the traditional sources of capital inadequate. In this perspective, recent empirical evidence suggests that equity capital markets will extend their role in the promotion of the port industry. In the last decade, in fact, several terminal operators and (corporatized) ports have gathered huge amounts of financial resources thanks to initial public offering (IPO). In 2007, for example, DP World Limited was listed on the Dubai International Financial Exchange (DIFX) by undertaking the Middle East s largest IPO, valued more than 4.5 USD billion, whereas, in 2011, HPH Trust s IPO raised gross proceeds of approximately 5.45 USD billion. Despite that, no prior contributions focus on the port IPOs as a key research area, and an irrefutable literature gap exits. Therefore, this paper aims to assess the performance of port IPOs, by developing an overarching conceptual framework that captures the determinants of long-run aftermarket performance, and stresses the explanatory power of financial markets, institutional factors and industry specific variables. For this purpose, over 90 port IPOs taking place worldwide since 2000 are scrutinized, crosssectional analysis is used for exploring drivers of IPOs performance, and ordinary least squares (OLS) regression analysis is performed for testing research hypotheses. Findings provide academic and practical implications, as they shed light on the port IPOs performance, as well as suggest options for attracting private investors and maximising IPO gross proceeds. IAME 2016 Conference August 23-26, 2016 Hamburg, Germany 1

4 Objective Although general finance literature on IPO performance is abundant and satisfactory, sectorial research is still rather scarce. Contributions dedicated to the maritime industry, indeed, are limited (Merikas et al., 2010), predominantly focus on shipping IPOs and neglect port companies. As empirical evidence suggests that financial markets will enlarge their role in fuelling the port industry, the initial public offering of stevedores and port companies becomes a prominent field of investigation for both scholars and port managers. In this perspective, extant literature proposed a number of determinants for explaining IPO performance, such as firm characteristics, transaction features and macro-economic variables (Grammenos and Papapostolou, 2012). Nonetheless, prior studies tend to focus on firm characteristics and transaction features, overlooking the predictive role of macro-economic variables, which, in turn, are expected, reasonably, to hold a significant predictive role, when assessing IPOs long-term performance or when focusing on high-regulated and locally embedded industries, like transport and ports. This paper, therefore, aims to assess the performance of port IPOs, by assuming an investors perspective, according to a long run view, which is consistent with port business characteristics and discourages purely speculative behaviours. In particular, the manuscript proposes an all-embracing conceptual model, which stresses the explanatory power of financial markets, institutional factors and industry specific variables as antecedents of long-term aftermarket performance (Figure 1). Figure 1 The determinants of port IPOs performance: conceptual framework Macro-economic variables Financial markets Institutional factors Industry specific variables Underpricing / Overpricing Firm characteristics IPO Performance ST Aftermarket performance Transaction features LT Aftermarket performance Source: own elaboration. IAME 2016 Conference August 23-26, 2016 Hamburg, Germany 2

5 Empirical context and Methodology For the aim of the study, we develop an ad-hoc database on port IPOs, relying on S&P Capital I-Q database, DataStream, IPO prospectuses and companies corporate websites as primary sources. The sampling process includes a three-stage selection procedure. The final sample is made up of 93 port common stock IPOs issued on stock exchanges worldwide, within the timeframe (Table 1 and Figure 2). Table 1. Sample IPOs: main characteristics Source: own elaboration. Figure 2. Sample IPOs in the port domain: spatial and temporal dimensions 8,000 7, ,000 (b) 14 7,000 6,000 5, ,000 6,000 5,989 5, USD million 5,000 4,000 3,000 2,000 1,000-3,020 2,302 2,412 2,212 1, USD million 5,000 4,000 3,000 2,000 1,000-2,720 2,379 2,130 1,252 1,345 1,158 1, Total Gross Proceeds No. of IPO Proceeds to Shareholders Proceeds to Company No. of IPO IAME 2016 Conference August 23-26, 2016 Hamburg, Germany 3

6 9% 2% No. of IPO 6% 4% Proceeds to Company 0% 3% 9% 15% 68% 84% Africa / Middle East Europe United States and Canada Asia / Pacific Latin America and Caribbean Africa / Middle East Europe United States and Canada Asia / Pacific Latin America and Caribbean Source: own elaboration. Consistent with our aim, for each sample IPO we calculate both cumulative abnormal returns (CARs) and buy-and-hold abnormal returns (BHARs) in a two-year and a three-year perspective. Data on initial raw and market-adjusted returns, as well as aftermarket performance are measured grounding of information reported by S&P Capital I-Q and DataStream. Further, ordinary least squares (OLS) regression analysis is carried out to investigate the determinants of IPOs long-term aftermarket performance and test research hypotheses. In particular, two-year and three-year BHARs and CARs are used as dependent variables in the OLS regression analysis, while seven macro-economic factors are introduced as independent variables. In particular, listing stock exchange and hot/cold issuing period are considered among variables related to financial markets. The level of voice and accountability as well as the degree of political stability of the home country of the listing company are selected as institutional factors, whereas the nature of the listing company (port authorities vs. other), the status of the port liberalization process and the homeport international opening are investigated as relevant industry-specific variables. Finally, IPO s underpricing, firm characteristics and transaction features are included in the analysis, as control variables. Results The OLS regression analysis provides relevant insights on the determinants of port IPOs performance. The outcomes, in fact, demonstrate the predictive power of macro-economic variables as antecedents of IPOs long-run aftermarket performance in the port domain In particular, when considering financial markets trends, port IPO listed on primary Stock Exchanges and those that are offered during bullish market, are found to experience higher three-year CARs and BHARs. In addition, among institutional variables, the degree of political stability of the issuer s home country positively affects port IPOs long run performance. Finally, also industry-specific variables are demonstrated to be good predictors of port IPO success or failure. In particular, port authorities experience lower long-term IAME 2016 Conference August 23-26, 2016 Hamburg, Germany 4

7 performance respect to other terminal companies: due to their hybrid nature and heritage, these companies are more stakeholders-oriented and less devoted to the shareholder value maximization. In addition, port IPOs long-term performance is lower when the issuer comes from a country, which has started the liberalization process since a long time, as the private sector has already exploited time window opportunities. Conversely, IPOs performance is higher if the listing company operates in a home country whose port sector is characterized by a broad international opening. Implications for Policy The paper explores the rationale behind the public listing of port companies and terminal operators, and investigates the potential antecedents of their long-term performance. The outcomes provide useful insights for advancing extant literature on port reform and governance, as the public listing of some port authorities has come as the final step of a corporatization path (Pallis and Syriopoulos, 2007). Findings offer insights for port managers. The performance of extant port IPOs are expected to influence both the capacity of port companies to gather additional financial resources from equity capital markets in the future, and the cost of funding. In addition, it may shape the attitude of private investors toward this equity asset class. Therefore, the assessment of the port IPOs long-term performance and the understanding of its determinants, provide port practitioners with viable tools for lowering the weighted average cost of capitals (WACC) of port companies and maximizing IPOs gross proceeds. Finally, the paper brings insightful evidence for policy makers, as the public listing of port authorities/companies, given certain environmental condition, is suggested as a viable option for implementing port reform and restructuring governance settings. Keywords: port finance; port IPO; long-run performance; institutional factors; industryspecific variables. IAME 2016 Conference August 23-26, 2016 Hamburg, Germany 5