The Pricing of Instalments Receipts: New Zealand Evidence

Alastair Marsden () and Russell Poskitt
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Alastair Marsden: Department of Accounting and Finance, University of Auckland, Private Bag 92019, Auckland 1020, New Zealand
Russell Poskitt: Department of Accounting and Finance, University of Auckland, Private Bag 92019, Auckland 1020, New Zealand

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 03, 423-449

Abstract: We examine the pricing of instalments receipts ("IRs") issued on the New Zealand stock market that trade concurrently with the underlying shares. An IR is a security that has identical entitlements to dividends receipts as the holder of an ordinary share but allows the holder to acquire the ordinary share with fixed pre-scheduled payments spread over a period of time. Similar to Charupat and Prisman (2004) for IRs traded in the Canadian market, we find that IRs of secondary offerings in the New Zealand market trade at an economically significant premium in the immediate period following their initial issue. The premium then declines over time and becomes negative in the period prior to the final instalment payment date. Our study suggests the benefits of IRs are not unique to one institutional environment and that issuers can increase the demand for new securities by overcoming investors' borrowing restrictions.

Keywords: Instalment receipts; market efficiency; financial innovation; JEL Classification G12; JEL Classification G13; JEL Classification G14 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091504000172

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