Journal of Property Investment & Finance

The initial return performance of UK property company IPOs

Winston Sahi Stephen L. Lee
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Winston Sahi Stephen L. Lee, (2001),"The initial return performance of UK property company IPOs", Journal
of Property Investment & Finance, Vol. 19 Iss 2 pp. 127 - 139
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ACADEMIC PAPERS Academic

papers: Initial
The initial return performance return

of UK property company IPOs

127
Winston Sahi and Stephen L. Lee
Department of Land Management and Development, Received July 1999
The University of Reading, Reading, UK Revised July 2000

Keywords Property, Going public, Trading companies, Investment

Abstract Presents empirical evidence for a sample of 48 UK property company initial public
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offerings over the period 1986 to 1995. Several conclusions can be drawn. First, property
companies in general show a significantly positive average first day return. Second, property
investment companies' average first day return is not significantly different from zero. Third,
property trading companies' average first day return is significantly positive. Fourth, the higher
average first day return of property trading companies over property investment companies is
significant.

Introduction
Shares of companies going public for the first time are typically at a price
below that achieved on their first day of trading, giving subscribing investors
large positive returns (for international evidence of this phenomenon, see
Ibbotson and Ritter, 1995; Loughran et al., 1994). Therefore, either the offering
price is set too low or the investors systematically overvalue initial public
offerings (IPOs) on the first trading day. Since the results of studies indicate
few if any departures from efficiency in the aftermarket (Ibbotson, 1975)
positive initial returns can be attributed to a downward bias in the offering
price, that is, IPOs are underpriced. No complete explanation of the
underpricing phenomenon exists, though various theories based on different
rationales shed light on the factors that may be influential:
. information asymmetry (Baron, 1982; Rock, 1986);
. second signalling (Allen and Faulhaber, 1989; Grinblatt and Hwang,
1989; Welch, 1989; Benveniste and Spindt, 1989);
. legal liability and litigation risk (Tinic, 1988; Hughes and Thakor, 1992);
and
. information cascade effects (Welch, 1992).
In Baron's information asymmetry theory, it is argued that underwriters are
better informed about the appropriate price for IPO shares than the issuers,
because they possess greater information about investor demand for the
securities. In addition underwriters have an incentive to recommend an offering Journal of Property Investment &
price below the true market value to reduce the marketing effort and to avoid Finance, Vol. 19 No. 2, 2001,
pp. 127-138. # MCB University
unsold shares. Thus the theory predicts larger average underpricing for IPOs Press, 1463-578X
 JPIF that are subject to greater uncertainty about their market-clearing prices. In
19,2 contrast, Rock suggests that the information asymmetry is between informed
investors and uninformed investors. In particular where rationing occurs,
informed investors crowd out uninformed investors leaving uninformed
investors receiving allocations that are biased towards less profitable issues.
Therefore in order to compensate the uninformed investors for their adverse
128 selection and to induce them to participate in future initial offerings, the
company underprices the issue. A cross-sectional implication of Rock's theory
which is developed in Beatty and Ritter (1986) is that the greater the
uncertainty about the value of the firm on the part of the investor, the greater
the underpricing needed to attract uninformed investors. The signalling
theories in comparison propose that companies signal their quality by
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underpricing, intending to make up for the loss by selling subsequent issues on

more favourable terms. Litigation risk theories argue underpricing serves as a
form of insurance against legal liability and the associated damages to the
reputation of investment bankers. In contrast, Welch argues that the pricing
decisions of issuers reflect information cascades, where later investors rely
completely on the purchasing conditions of earlier investors and ignore their
own information. Finally, Ruud (1993) argues that whereas all the above
assume deliberate underpricing, what is actually happening is that the
underwriters often buy the IPO shares to prevent their prices falling below the
offer price in the first few days post issue. Thus the positively skewed
distribution of initial returns is the result of a suppressed left tail.
The majority of such studies are based on industrial companies with
established operating assets. Contrary to such findings of positive average
initial returns, empirical evidence on certain non-operating asset holding
businesses has shown insignificant or negative initial returns. For example, the
initial performance of closed-end funds shows negative or insignificant initial
returns (Weiss, 1989; Peavy, 1990 (in the USA); Levis and Thomas, 1995 (in the
UK)). Similarly, real estate investment trusts (REITs), the closest equivalent to
UK property companies, show insignificant or negative returns (Wang et al.,
1992; Below et al., 1995).
In the UK there is no difference in the Stock Exchange's treatment of IPOs of
property companies from that of other companies, apart from the requirement
that property companies must also include a valuation certificate of their
property portfolio. However, UK property companies are made up of property
investment companies (PICs), which hold similar commercial property portfolio
to REITs, and property trading companies (PTCs) which are more like
industrial companies (Barkham, 1997). As a consequence there is greater value
uncertainty for the latter than the former, for whereas the rent received by PICs
is seen by the market as quality income, trading profits of property trading are
regarded as volatile and harder to determine. This difference in their perception
is evidenced by the use of different share valuation bases ± net asset value
(NAV) for PICs and price earnings ratios (PER) for PTCs. This implies that
PICs are likely to have similar initial returns to that of REITs and closed-end
 funds and that PTCs are likely to perform more in line with previous studies of Academic
industrial companies and show significant underpricing. The different natures papers: Initial
of property companies, their differing share valuations and the complexity of return
their accounts make the assessing of the true market value of a property
company's shares difficult and uncertain. However, of the two types, the
estimation of the ``true'' price of PTCs is likely to be more difficult than that of
PICs. As a consequence PTCs are more likely to be underpriced than PICs. 129
Even so the only study of UK property company IPOs, in marked contrast to
REIT IPOs, has shown significantly positive average initial returns (Gerbich et
al., 1995). The authors of the study conclude that given the similarity of the
assets that REITs and property companies hold, the underlying assets are not
the cause of the REIT overpricing. Clearly the strength of the Gerlich et al.'s
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(1995) argument lies in the assumption of the similarity between REITs and UK
property companies. Given the two distinct types of UK property companies,
this study argues that the more accurate comparisons are between REITs' and
PICs' IPOs, and between industrial companies and PTCs. Consequently, this
study extends previous work on REITS in the USA and property companies in
the UK, by examining whether there is a significant difference in the first day
returns of PICs and PTCs.

Non-industrial IPOs
The majority of studies on IPOs are based on industrial companies with
established operating assets. In particular Ibbotson et al. (1988) explicitly
excluded closed-end funds and REITs from their sample of 8,668 IPOs for the
period 1960-1987, and find an initial average return of 16.37 per cent. Contrary
to such findings of positive average initial returns, empirical evidence on
certain non-operating asset holding businesses has shown insignificant or
negative initial returns that set these latter businesses as a case apart.
For example, closed-end funds, called investment trusts in the UK, are
companies that manage a portfolio of shares or other securities with their prices
determined in the Stock Exchange. Like any other company they can raise long
term debt capital, such gearing causing their share prices to be more volatile.
Their shares often trade at discount or premiums to net asset value. In studies
of IPOs by such companies, insignificant initial returns rather than
significantly positive returns are the norm. For example, in the USA, Weiss
(1989), in a study of 64 closed end funds IPOs over the period 1985-1987, and
Peavy (1990), in a study of 41 closed end funds over the period 1986-1987, both
reported insignificant initial returns. In the UK, Levis and Thomas (1995), in a
comprehensive study of 105 investment trusts over the period 1984-1992,
reported an average initial positive return of 1.91 per cent. However, initial
returns varied considerably across the different types of trust in their sample.
For example, Far Eastern trusts reported positive initial returns whereas UK
(with ordinary as opposed to split capital structure), European and
International trusts all reported insignificant initial returns. Peavy (1990) and
Ibbotson et al. (1988) argue that the insignificant initial returns on closed end
 JPIF funds is supportive of the information asymmetry hypothesis because there is
19,2 little uncertainty about the underlying value of the funds' assets.
Closed end funds are not the only type of IPO associated with insignificant
or negative initial returns. Michaely and Shaw (1994) reported that master
limited partnerships (MLPs) which invest in oil, gas and real estate have
significantly lower initial returns than other IPOs for a study carried out over
130 the period 1984-1988. Similarly, REITs, the nearest equivalent to UK property
companies (Canon and Vogt, 1995), have shown negative average initial
returns. Specifically, Wang et al. (1992), in a study of 87 REITs' IPOs over the
period 1971-1988, reported a significant negative average initial return of ±2.82
per cent. Below et al. (1995), in a study of 58 REITs over the period 1972-1989,
similarly reported minor negative average initial returns. They believe that this
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is supportive of the information asymmetry hypothesis as Peavy (1990) and

Ibbotson et al. (1988) do for the closed-end funds case, assuming that the funds
raised in the issue, less the costs, are invested in property at the fair market
price. Wang et al. (1992) criticise this, preferring to emphasise the difference
between the market for the two underlying assets. Specifically, the underlying
shares of closed-end funds are traded on liquid market with observable market
values, whereas REITs invest in real estate which are infrequently traded and
over whose values there is considerable uncertainty. Occasionally, REITs do
not even specify the assets they will be acquiring with the IPO funds and the
investors are unable to value the as-yet-unidentified real estate assets. Even in
cases where REITs do fully or partially specify their prospective investments
at the time of the IPO, the underlying assets have an uncertain market value.
Given this valuation uncertainty, or so Wang et al. (1992) argue, there is little
reason to believe that REIT IPO pricing behaviour should be similar to that of
closed-end funds.
Nonetheless, given that REITs hold a commercial property portfolio,
studying UK property IPOs would reveal whether the insignificant average
initial return was due to institutional reasons or valuation uncertainty/
underlying assets held. Gerlich et al. (1995), in a study of 51 property company
IPOs over the 1981-94 period, reported an average initial return of 11.11 per
cent. This was lower than Levis's (1993) 14.1 per cent for all IPOs in the UK, but
substantially higher than REIT IPOs. However, these studies were taken over
different periods and due to the cyclical nature of the IPO market, care needs to
be taken, here as elsewhere in the article, when making direct comparisons.
Nevertheless, Gerlich et al. (1995) believe this supports Wang et al.'s (1992)
contention and conclude that the underlying assets are not the cause of REIT
overpricing. As a result, it would seem that none of the existing IPO theories
can explain the significant negative average initial return on REITs.

UK property companies
Property companies seek to maximise their shareholder value through their
interest in property either by trading (or dealing) in land and buildings, or by
acquiring standing investments and holding them for their long-term income
 and capital growth potential (see Barkham, 1997). In the process of this they Academic
may develop, refurbish or redevelop properties. Thus, these property papers: Initial
companies can be categorised as either property trading companies (PTCs) or return
property investment companies (PICs), even though often a company will be
involved in both investment and trading. Also, a company's main activity can
change as it grows: PTCs often, in time, become PICs as they begin to retain
their completed developments as investments. The distinction is important as it 131
may determine the method of their share valuation and their performance when
first issuing shares.
PICs usually have substantial portfolios of commercial property
investments along with varying amounts of commercial developments in
progress. These companies have high levels of asset backing. As such, they are
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valued by the market, less on their earnings and dividends, than according to
their underlying estimated current fully diluted net asset value or NAV. If
quoted, their share prices are determined by supply and demand on the stock
market. In addition property companies normally trade at a discount to their
NAV, where a discount to NAV is defined as the company's NAV less its
market capitalisation expressed as a percentage of NAV (Adams and Venmore-
Rowland, 1989). A positive value for the discount reflects a market
capitalisation that is below the NAV, that is, when the share price is below the
NAV per share. The discount or premium to NAV varies widely from one
company to another and the average discount or premium for the property
sector also varies over time.
Uncertainty as to true market value is of particular importance when
sponsors are trying to estimate a new company's share price. There are three
particular aspects of property company accounting that cast doubt on the
reliability of the NAV figure as stated in the prospectus. First, as an exception
to the general rule of fixed assets being held in the accounts at historic cost less
accumulated depreciation, investment properties ± under the Statement of
Standard Accounting Practice 19 (SSAP19) ± are held at their open market
value. Due to the investment characteristics of property, specifically the
infrequency of transactions, the heterogeneity, and the non-existence of a
central market place, resort has to be made to the use of valuation in
determining the market price. Various studies have been undertaken to
determine whether property valuations are proxies for market prices. Matysiak
and Wang's (1995) study of 317 sale/valuations over the 1973-1991 period,
reported that the probability of the selling price being within plus or minus 10
and 20 per cent of the valuation, was only 30 per cent and 70 per cent,
respectively. Similarly, Investment Property Databank/Drivers Jonas (1994) in
a study of 7,000 transactions over the period 1982-1993 reported that the
probability of the valuation being within plus or minus 10 and 20 per cent of the
sale price was 42.1 per cent and 65.8 per cent, respectively. Second, under
SSAP19, investment properties have to be valued annually by persons holding
a recognised professional qualification who have experience in the location and
category of the properties concerned, as well as, at least every five years, by an
 JPIF external valuer. Therefore, an internal valuer ± one working for the company,
19,2 even a director ± can carry out the annual valuation, but not the five-yearly one.
Such valuers are likely to inflate or deflate the property values in the
company's favour and this is often what appears to happen in practice
(Barkham and Purdy, 1992). Even external valuers appear on occasion to be so
influenced by the instructing company. Finally Barkham and Purdy (1992)
132 state that property companies select accounting policies that appear to be
inappropriate and which fail to reflect economic reality. This is further
compounded by the fact that such companies often do not state which
accounting policy is being adopted. Though legitimate, the resulting necessary
adaptations are often used as an excuse to manipulate accounts (Barkham and
Purdy, 1992). This misleads investors, making it hard for them to assess fully
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the level of risk associated with the property company's shares.

In contrast, PTCs have lower levels of asset backing and their shares tend to
stand at a premium to NAV. These companies are profit generators and their
valuation is based on profits rather than assets. Whereas PICs have regular
quality rental income with good growth prospects (including the benefits of
reversions) and little need for retained profits, the sales revenues of PTCs are
far more unpredictable and volatile. Therefore, PTCs' shares are likely to be
riskier than those of PICs (though this may be offset by higher expected
returns). Consequently, the share price of PTCs is derived in the same way as
that of any other trading company by applying PER to the company's forecast
earnings per share. The size of the PER depends on the market's expectation
for that company's after-tax profits growth. Eventually, property trading
companies reach a stage in their growth where they tend to use their highly
rated shares to acquire assets, thereby creating higher levels of asset backing.
The market will then start to treat the company as a PIC and value it with
respect to its underlying NAV.
The different natures of property companies, their differing share valuations
and the complexity of their accounts makes assessing the true market value of
a property company's shares difficult and uncertain. Nonetheless of the two
types the estimation of the ``true'' price of PTCs is likely to be more difficult
than that of PICs. As a consequence PTCs are more likely to be underpriced
than PICs.
Our reasoning is thus. First, although Wang et al. (1992) are right to
differentiate the characteristics/markets for the underlying investment real
estate vis-aÁ-vis financial assets, it is more appropriate to compare real estate
against the spectrum from financial asset to operating assets. Real estate is
traded in a more liquid, informed secondary market than are other real assets.
REITs with their holdings of investment real estate are more closely akin to
closed-end funds than to operating firms. So, although there is more valuation
uncertainty in the case of REITs than for share-holding closed-end funds, it is
far less than the case for industrial firms.
Second, it was inappropriate for Gerbich et al. (1995) to use evidence from
property companies to support Wang et al.'s (1992) argument regarding REITs.
 In light of the above-mentioned differences between property investment and Academic
property trading companies, the appropriate comparison for REITs are papers: Initial
property investment companies. return
It then follows that, because property investment companies like REITs hold
real estate as an investment, there is relatively low valuation uncertainty and
thus their initial returns would show insignificant initial performance. In
contrast, because property trading companies tend not to hold on to their 133
completed real estate with resulting sporadic cash flows, there is greater
valuation uncertainty, akin to industrial firms, and therefore we would expect
them to show high positive initial returns.
This paper sets out to test the following specific empirical implications
(I1-I3) that derive from the hypothesis explaining IPO returns:
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I1: The average initial return of PICs' IPOs is not significantly different
from zero.
I2: The average initial return of PTCs' IPOs is significantly positive.
I3: The average initial return of PTCs' IPOs is significantly greater than
that of PICs' IPOs.

Data and results

The population under investigation covers all IPOs of UK commercial property
company shares, as reported in Estate Gazette and S.G. Warburg's (various)
property reviews over the period from January 1986 to December 1995. Of the
57 companies identified from the above sources, the issue prices and issue
characteristic were obtained from a variety of sources to verify which had been
liquidated, which had been taken over and which had changed names. As a
result, the following seven companies were excluded as they either were not
strictly coming to the market for the first time or were not commercial property
companies:
. four reverse take-overs of quoted shell companies, namely St Mowden
(reversed into Redmann Heenan International), Zurick (into Ecobric),
Prior (into Knobs & Knockers) and TBI (into Markheath);
. two relistings of suspended property companies ± Merlin International
in May 1987 and Bourne End in 1989 ± which itself was originally a
reverse take-over; and
. one company whose property arm was secondary to its stated objective,
in terms of revenue and stated purpose of contracting and
housebuilding, namely the Try Group.
A further two companies were eliminated as they were both introductions[1].
The final sample consisted of 48 property companies with offering dates
spanning 1986-95.
The post issue share prices for the first trading day were obtained from
Datastream. For those companies not covered by Datastream, the first day
 JPIF trade price was obtained from the new issue section of the Financial Times for
19,2 pre-1992 issues and the Times post-1992. The first day's price is taken to be the
middle market closing transaction price on the first day of public trading.
``Raw'' data was used, unadjusted for subsequent bonus or rights issue or
market factors. Due to the short interval involved raw returns calculated over a
single day are considered justifiable.
134 For each initial public offering, two measures of initial performance were
calculated:
(1) The first day unadjusted return for companies i, denoted by Ri, is
defined as the continuously compounded return which when applied to
the offer price (OP) at the beginning of the first trading day would
accumulate to P by the close of the same day and is given by:
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Ri ˆ Ln…Pi =OPi † :

(2) The first day adjusted return for issue i, (ARi), is defined as the first day
unadjusted return less the equivalent change in the property sector price
index (Rs):
ARi ˆ Ri ÿ Rs :

The property sector price index is obtained from Datastream.

Generally, these returns are calculated as the equal-weighted arithmetic
average of initial return. However, various authors calculate market-adjusted
returns using different benchmarks. For instance, Ibbotson (1975) uses the
return from the issue date to the calendar month-end rather than the first
trading day as well as using risk-adjusted returns. However, the changes in the
market-adjusted returns over so short an interval irrespective of the benchmark
used does not materially affect the general conclusion.

Results
Of the total 48 companies, 26 (54 per cent) were PICs and 22 (46 per cent) were
PTCs. However, whereas PIC IPOs are more evenly spread over the whole issue
period, nearly all (95.6 per cent) of the PTCs' IPOs occur in the 1986-1989 issue
period. This fact needs to be accounted for when making comparisons between
the two types of property company IPO initial returns (for the purposes of I3)
for the following reason: PTCs came to the market when the property market
and property sector in general were booming, which might exaggerate their
average initial returns, thereby increasing the difference in average initial
returns in comparison to PICs. However, it would seem reasonable to argue that
the high initial returns earned by those PICs who came to the market in the
boom would be offset by the lower initial returns on those that came in the
recession of the early 1990s. That is, account has to be taken of market timing.
It is for this reason that the first day sector-adjusted returns are calculated.
 Initial returns Academic
Table I reports average first day unadjusted returns for the entire population papers: Initial
and for PICs and PTCs separately. The total average first day return is 7.8 per return
cent. This is almost half that of the average initial return on all UK industrial
IPOs of 14.3 per cent (Levis, 1993), but higher than the 1.91 per cent average
initial return on UK investment trusts (Levis and Thomas, 1995) and the ±2.82
per cent reported on REITs IPOs (Wang et al., 1992). These results accord with 135
those of Gerlich et al. (1995) who, using the percentage change in price over the
first day as the initial return measure, reported an all property company IPO
average of 11.1 per cent.
The data also displays the characteristics of non-normality[2], in line with
the arguments of Ruud (1993). Table I shows that all first day returns are
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significantly non-normal at greater than the 1 per cent level of significance, due
to both significant positive skewness and kurtosis in the data. In other words
not only does the returns data exhibit positive skewness, it is even more
peaked, i.e. leptokurtic, than the normal distribution. Thus most of the returns
are even more tightly clustered around the mean than compared with the
normal distribution. This is true even if adjusted returns are used. Whether this
positive skewness is as a consequence of price support by the underwriters is
not known.
In addition the unadjusted and adjusted average first day (mean and
median) return, for the whole sample of property companies, is positive and

First day returns

All companies PICs PRCs
Unadjusted Adjusted Unadjusted Adjusted Unadjusted Adjusted

Mean 7.79 8.33 4.11 5.32 12.14 11.90

SD 16.63 17.73 17.55 19.87 14.68 14.46
t-statistica 3.25 3.26 1.19 1.3656 3.88 3.86
Probability 0.0022 0.0021 0.2435 0.1842 0.0009 0.0009
Percent negative 20.83 20.83 30.77 26.92 9.91 13.64
Skewness 1.39 2.06 1.61 2.48 1.71 1.58
Kurtosis 7.32 10.24 8.90 12.12 5.91 5.33
Jarque-Bera test 52.81 138.82 48.88 116.85 18.43 14.11
Probability 0.000 0.000 0.000 0.000 0.000 0.001
Median 5.143 5.232 4.607 4.834 9.216 8.495
Sign test 3.897 3.897 1.765 2.157 3.624 3.198
Probability 0.0000 0.0000 0.0145 0.0047 0.0000 0.0001

Difference in means/median PICs and PTCs

Unadjusted Adjusted
ANOVA 2.89 1.66181
Probability 0.09571 0.20381
Mann-Whitney U-test 1.86 1.69 Table I.
Probability 0.06257 0.09173 Unadjusted and
adjusted first day
a
Note: Tests whether the initial returns are significantly different from zero returns
 JPIF significantly different from zero[3]. This implies that on the first day property
19,2 company issues are underpriced. However, there are differences in terms of
significance between PICs and PTCs, as suggested above. The average first
day (mean and median) returns for PICs are all positive and, except for the
adjusted median return which just falls beyond the critical value, are not
significantly different from zero. It is the highly significantly positive average
136 (mean and median) return of PTCs that leads to the general conclusion that
overall property company first day returns are significantly positive. In
addition only 9.9 per cent of PTCs (two issues) started trading below their offer
price as opposed to the 30.8 per cent of the total number of PICs.
Finally, initial average (mean and median) returns are significantly higher
for PTCs (12.14 and 9.22 per cent) than for PICs (4.11, 4.61 per cent), based on
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parametric ANOVA and non-parametric Mann-Whitney U-tests. This result

holds even after adjusting for property sector timing.
Although the first day returns of PTCs are significantly positive, no
conclusive statement can be made about whether an investor selecting an PTC
IPO at random has better than an even chance of making a profit, especially as
we have not taken account of transaction costs. But transaction costs aside, it
can be said that given the skewed distribution and the large standard deviation
of 14.68 per cent (14.46 per cent for unadjusted returns), the investor has a
higher likelihood of an extremely large positive initial performance than a
corresponding large negative performance.

Conclusions
This paper presents empirical evidence for 48 UK commercial property
company IPOs broken down into PICs and PTCs IPOs. A number of
conclusions can be drawn. First, PICs show an overall insignificant average
initial return of 4.11 per cent. This is below the average initial return on all UK
industrial IPOs of 14.3 per cent but higher than the 1.91 per cent average initial
return on UK investment trusts and the ±2.82 per cent reported on REITs IPOs.
Second, the average initial return on PTCs was a significant 12.14 per cent,
similar to the all UK industrial IPOs. Finally, and more importantly, the PTCs
initial returns are significantly higher than the PICs IPOs initial returns. The
result holds true even after adjusting for market timing and sector returns.
However, because of the relatively small sample size, which is split into two
subsets, the conclusions drawn can only be tentative.
The first day performances of PICs are in line with those of investment
companies and REITS, all showing low but insignificant positive returns. In
contrast, PTCs' first day returns appear more in line with previous studies of
industrial companies, displaying significant underpricing. In other words PICs
are valued on their underlying asset value, a valuation that is likely to be more
precise than the valuation of PTCs that are priced on projected earnings and
PER. The results of Gerlich et al. (1995), which covers almost the same data and
period of analysis as here, need to be modified in light of the differences
between the valuation of the two types of property company.
 Notes Academic
1. If the company simply wishes to obtain a quotation for its existing shares rather than linking
the admission to the market with the issue of new shares to the market as a whole, it can enter
papers: Initial
the market via an introduction. It can only do so if the shares already in issue are of an amount return
and so widely held that their marketing when quoted can be assumed. Hence, unlike offers for
sale or placings, introductions do not involve the raising of new capital for the company.
2. In order to test for normality we employ the Jarque-Bera test which is asymptotically
distributed as Chi-squared with two degrees of freedom (see Jarque and Bera, 1980; Bera 137
and Jarque, 1982). The test has proved to be efficient in Monte Carlo experiments for
relatively small samples (Bera and Jarque, 1981; Jarque and Bera, 1987).
3. The standard t-test, in the presence of non-normality may be suspect but the very high
significance levels of the overall data and that for PTCs which are both significant at
greater than 1 per cent level, suggests the results are likely to be robust to any departures
from normality. However for the sake of thoroughness, a non-parametric test is included.
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The sign test of the median is a non-parametric two-tail 1 per cent significance level with
small sample normal approximation of the binomial distribution appropriate when p is
large, as here, and with a ±1/2 correction factor for continuity. The probability figures are
however based on the exact discrete binomial distribution. The median is especially
appropriate given the evidence of asymmetry.

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