Abstract

Through four essays, this thesis investigates different aspects of new issues of common equity in Canada. The first three essays consider initial public offerings (IPOs) and the fourth essay examines seasoned equity offerings (SEOs). The short-run intraday behaviour of Toronto Stock Exchange (ME) IPOs are examined first. Initial trading volume and number of trades for underpriced (overpriced) issues is unusually high (low) indicating that informed investors are active (inactive). Liquidity is consistently lower for overpriced issues. The typical investor Will probably not earn positive returns from IPO investment since median returns are consistently zero over the short-run. Amortized spreads are large and are driven primarily by unusually large share turnover at the start of secondary market trading. A four-moment market model indicates that the shape of the distribution of returns is important in explaining IPO returns. The overallotment option (OAO) gives underwriters the right to acquire additional shares from the firm at the offer price (less fees). It has been suggested that one use of the OAO is to stabilize price. Several aspects of stabilization in the new issue market in Canada are examined in order to establish its presence and to determine the role played by the OAO. Although there are indications that prices are being stabilized at the start of secondary market trading, the OAO does not seem to have a clear impact in terms of supporting prices. On the other hand, the OAO does have a positive effect on underwriter fees which implies that the reluctance of Canadian issuing firms to grant OAOs may be justified. Next a sample of underwriter fees for TSE listed common equity IPOs is examined. Mean fees for Canadian IPOs are less than one percent below fees charged by U.S. underwriters over a similar period of time. There is some apparent clustering of fees at 6% for medium sized IPOs, but different from U.S. IPOs, this fee concentration is cyclical rather than increasing over time. An analysis of fees charged by Canadian brokerage firms suggests that while fees are high relative to those charged by brokerages in countries other than the U.S., evidence in favour of collusion is weak. Efforts in Canada to reduce the country's dependence on natural resources are not directly observable in the capital markets with resource firms remaining prominent in the issuance of seasoned equity. Amortized spreads are much smaller for SEOs than IPOs since lower share turnover effectively distributes transactions costs over longer holding periods. Consistent with the literature, negative and positive announcement period abnormal returns are identified for non-resource public offerings and private placements. Pre-announcement abnormal returns and offering type are important in explaining announcement period abnormal returns.