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Abstract
This thesis examines the role of backdoor listing transactions (BDL) as an alternative route for private firms to go public in the Australian market. In addition, it examines the motivations and performance of firms engaging in such activities. Based on a hand-collected sample of 200 backdoor listing transactions completed during 1992-2007, it is found that Australian BDL transactions are characterised by a high proportion of concurrent equity raisings, information disclosure by way of a prospectus and re-meeting of the re-admission requirements of the listing rules. Public companies that participate in BDL transactions are mostly defunct, with the mining sector being the largest supplier of shell companies. The backdoor-listed private firms are mostly small, development-stage firms, engaging in high-tech businesses.
Using three different constructs of shareholder return (viz., buy-and-hold abnormal return, expert-based return and implied shell premium), public firm shareholders are found to gain substantially, with returns ranging from 32 to 49 percent. Multivariate analysis confirms that the measured shell premium is positively related to the pre-event shareholder base and the invocation of regulatory impediments to the takeovers process.
Results from an empirical choice model indicate that BDL firms are less liquid, less profitable and more at a development stage than their initial public offering (IPO) counterparts. BDL transactions generally take longer to complete than IPOs and are associated with more cashing-out activity and lower retained ownership by private firm owners. However, no significant difference in the degree of underpricing (first-day return) between the matched BDL and IPO sample is found.
BDL firms are found to underperform, in terms of both accounting and stock price measures, a control sample of IPO firms in the three years subsequent to listing, although this underperformance seems to attenuate over longer horizons. The average buy-and-hold abnormal return (BHAR) of BDL firms by the end of the 36-month holding period is −37.0, −62.6 and −87.7 percent relative to three benchmark portfolios of IPOs and value- and equally-weighted market indices. The underperformance in BHARs is robust to tests based on a calendar-time portfolio approach.