Unlocking IPO success in Pakistan: the power of institutional quality, sponsor ownership and smart pricing
Abstract
Purpose
This study investigates the variables that impact initial public offerings (IPO) initial returns witnessed in Pakistan from 1996 to 2019 using pre-listing information variables, namely country-level institutional quality, sponsor ownership and pricing mechanism. IPO oversubscription is included as a moderating variable.
Design/methodology/approach
This research is motivated by the premise that the Pakistani IPO market is characterised by a broad range of institutional and regulatory frameworks. Multiple regression studies, i.e. ordinary least square (OLS) and quantile least square (QLS), were performed on 102 IPOs issued on the Pakistan stock market.
Findings
The present study findings suggest that the quality of public service, the independence of civil service from political influences and the legitimacy of government increase investors’ confidence in the prospects of companies, hence increasing the demand for IPO and initial returns. In addition, good regulatory quality enhances market transparency and lowers uncertainty, hence signalling high-quality IPOs and leading in substantial initial returns. The negative effect of the lock-up ratio on the initial return of an IPO is consistent with the risk-return trade-off theory, which asserts that the lock-up ratio indicates the quality of the IPO.
Practical implications
The results provide market regulators, policymakers, investors and underwriters with useful data for assuring proper subscriptions of issued shares, as these variables are crucial for company transparency and market efficiency. The findings will also help investors make better IPO subscription decisions.
Originality/value
The present study explains the important influencing factors of IPO initial return in the Pakistani market.
Keywords
Acknowledgements
The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the paper.
Citation
Mehmood, W., Mohd-Rashid, R., Ahmad, A.H. and Hussain, A. (2024), "Unlocking IPO success in Pakistan: the power of institutional quality, sponsor ownership and smart pricing", South Asian Journal of Business Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SAJBS-09-2023-0342
Publisher
:Emerald Publishing Limited
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