Share Purchase Plans in Australia: Issuer Characteristics and Valuation Implications

Share purchase plans (SPPs) are offered exclusively to a company's registered shareholders, who may purchase up to $5,000 worth of shares in a 12-month period at a discount to the market price and without any brokerage charge. They have become one of the most frequently used mechanisms for raising publicly traded equity capital in Australia, yet little is known about them from a financial markets perspective. We address this deficiency by documenting the characteristics of Australian firms that have adopted SPPs and assessing their short-term and long-term valuation implications. We find that SPPs are more likely to be issued by firms with lower levels of liquidity and relatively large numbers of shareholders. They have a negative announcement effect, which is associated with the size of the issue, the prior share-price runup, the issue-price discount, the firm's industry, and whether there is enough time for non-shareholders to buy shares in order to participate. Long-run underperformance is also found over extended periods, consistent with much of the seasoned equity offering (SEO) literature. The SPP-issuer did not perform as badly if it was in the mining industry, if it was audited by a ‘Big-N’ firm, or if the issue was underwritten. Conversely, the greater the issue discount, the worse the issuer's long-run performance.