Pricing Mechanism and IPO Initial Return: Evidence from Pakistan Stock Exchange
This study adds to the extent of the literature by examining the impacts of pricing mechanism and premium offered on IPO initial return in Pakistan. Cross-sectional data were gathered using 90 listed IPOs retrieved from Pakistan stock exchange. Accordingly, ordinary least squares, quantile regression, robustness regression, and stepwise regression were employed to assess the factors that influenced initial return. This study describes the intensity of initial return in light of company specific and issue specific variables. Both closing and opening prices to offer price were incorporated to measure the initial return on the initial day of trading. The outcomes showed that after the reform of book building pricing mechanism, the initial return of IPOs increased, when compared to the fixed price offerings in Pakistan. This study concludes that information from book building pricing mechanism and premium had influenced both issuer and investor in subscribing IPO.
Abrahamson, M., & De Ridder, A. (2015). Allocation of shares to foreign and domestic investors: Firm and ownership characteristics in Swedish IPOs. Research in International Business and Finance, 34, 52-65.
Akerlof, G. A. (1978). The market for "lemons": Quality uncertainty and the market mechanism. Uncertainty in economics, 235-251.
Angelini, E., & Foglia, M. (2018). The relationship between IPO and macroeconomics factors: An empirical analysis from UK market. Annals of Economics and Finance, 19(1), 319-336.
Angrist, J. D., & Pischke, J.-S. (2008). Mostly harmless econometrics: An empiricist's companion. New Jersey: Princeton University Press.
Aslam, U., & Ullah, S. (2017). Determinants of IPO short run and long run performance: A case study on the listed firm of Pakistan Stock Exchange. Paradigms: A Research Journal of Commerce, Economics, and Social Sciences, 11(2), 165-172.
Bangsund, L. (2014). IPO valuation and investment bank reputation: evidence from a beauty contest. Journal of Applied Finance, 24(2), 52-60 .
Bansal, R., & Khanna, A. (2013). Vector auto-regressive analysis of determinants of IPO underpricing: empirical evidence from Bombay Stock Exchange. Global Business Review, 14(4), 651-689.
Benveniste, L. M., & Wilhelm, W. J. (1990). A comparative analysis of IPO proceeds under alternative regulatory environments. Journal of Financial Economics, 28(2), 173-207.
Che-Yahya, N., Abdul-Rahim, R., & Mohd-Rashid, R. (2018). The influence of" offer for sale" by existing shareholders on investors' reaction in the IPO immediate aftermarket. Business and Economic Horizons, 14(4), 818-828.
Chhabra, S., Kiran, R., & Sah, A. N. (2017). Information asymmetry leads to underpricing: validation through SEM for Indian IPOs. Electronic Library and Information Systems, 51(2), 116-131.
Deb, S. S., & Marisetty, V. B. (2010). Information content of IPO grading. Journal of Banking and Finance, 34(9), 2294-2305.
Eldomiaty, T. I. (2008). Determinants of corporate capital structure: evidence from an emerging economy. International Journal of Commerce and Management, 17(2), 25-43.
Gounopoulos, D., Mazouz, K., & Wood, G. (2019). The consequences of political donations for IPO premium and performance. SSRN eLibrary.
Guo, Y., Wang, T., Seng, J. L., & Hung, S. S. (2017). The effect of disclosure patterns of risk factors in prospectus on the relation between strategic alliances and underpricing of biotechnology IPOs. Journal of Applied Business Research, 33(3), 509-520.
Handa, R., & Singh, B. (2017). Performance of Indian IPOs: An Empirical Analysis. Global Business Review, 18(3), 734-749.
Ibbotson, R. G. (1975). Price performance of common stock new issues. Journal of Financial economics, 2(3), 235-272.
Javid, A. Y., & Malik, H. (2016). Performance and capital structure of IPOs in Pakistan from 2000 to 2015. Financial Innovation, 2(1), 14-33.
Kayani, S., & Amjad, S. (2011). Investor interest, under-pricing and trading volume in Pakistan secondary market. Business and Economics Journal, 20(BEJ-39), 1-15.
Khalid, S. M., & Farhat, R. (2018). What happened to the investors of South Asian countries while investing in the newly listed firms: A new approach? Journal of Economics, Business and Management, 6(4), 150-154.
Khalid, S. M., & Nasr, M. (2007). Performance of initial public offerings in Pakistan. International Review of Business Research Papers, 3(2), 420-441.
Khalid, S. M., & Raheman, A. (2009). Determinants of under-pricing of IPOs regarding financial & non-financial firms in Pakistan. European Journal of Economics, Finance and Administrative Sciences, 15(1), 62-73.
Koenker, R., & Bassett, G. (1978). Regression quantiles. Econometrica: Journal of the Econometric Society, 46(1), 33-50.
Maddala, G. S., & Lahiri, K. (1992). Introduction to econometrics: Macmillan: New York.
Malik, N. (2012, June 2-3). Economic sanctions imposed on Pakistan and their impact. Paper presented at the International Conference on Innovation, Trade and Economics (ICITE), Hong Kong.
Marcato, G., Milcheva, S., & Zheng, C. (2018). Market integration, country institutions and IPO underpricing. Journal of Corporate Finance, 53, 87-105.
Mazouz, K., Mohamed, A., Saadouni, B., & Yin, S. (2017). Underwriters' allocation with and without discretionary power: Evidence from the Hong Kong IPO market. International Review of Financial Analysis, 49, 128-137.
Mehmood, W., Mohd-Rashid, R., & Ahmad, A. H. (2020a). Impact of pricing mechanism on IPO oversubscription: evidence from Pakistan stock exchange. Pacific Accounting Review, 32(2), 1-16.
Mehmood, W., Mohd-Rashid, R., Che-Yahya, N., & Ong, C. Z. (2020b). Determinants of heterogeneity in investors' opinions on IPO valuation: evidence from the Pakistan stock market. Review of Behavioral Finance. doi: 10.1108/RBF-04-2020-0078.
Mehmood, W., Mohd-Rashid, R., & Ahmad, A. H. (2020c). The variability of IPO issuance: evidence from Pakistan Stock Exchange. Global Business Review, 1-16. doi: 10.1177/0972150920929198.
Mohd-Rashid, R., Abdul-Rahim, R., & Che-Yahya, N. (2019b). The influence of information asymmetry on IPO lock-up provisions: evidence from Malaysian market. Global Business Review, 20(3), 1-14.
Mohd-Rashid, R., Abdul-Rahim, R., & Yong, O. (2014). The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market. Economic Systems, 38(4), 487-501.
Mohd-Rashid, R., Masih, M., Abdul-Rahim, R., & Che-Yahya, N. (2018). Does prospectus information matter in IPO pricing? Journal of Islamic Accounting and Business Research, 9(4), 514-530.
Mohd-Rashid, R., Abdul-Rahim, R., Che-Yahya, N., & Tajuddin, A. H. (2019a). Impact of a regulatory change on initial performance of IPOs. Afro-Asian Journal of Finance and Accounting, 9(3), 332-348.
Nelson, T. (2003). The persistence of founder influence: Management, ownership, and performance effects at initial public offering. Strategic management journal, 24(8), 707-724.
Pakistan Stock Exchange-Flotation (1999). Pakistan stock exchange. Retrieved from www.psx.com.pk/psx/resources-and-tools/listings/listings-history.
Pu, D., & Wang, S. (2015). The impact of pricing mechanism reform on underpricing of initial public offerings in China. Applied Economics Letters, 22(14), 1144-1149.
Rasbeed, A., Datta, D. K., & Chinta, R. R. (1997). Determinants of price premiums: A study of initial public offerings in the medical diagnostics and devices industry. Journal of Small Business Management, 35, 11-23.
Sohail, M., Raheman, A., Zakaria, M., & Farhat, R. (2018a). IPO underpricing phenomenon on the Karachi stock exchange. Argumenta Oeconomica, 41(2), 225-255.
Sohail, M., Bilal, H., Rukh, L., & Fatima, S. (2018b). Determinants of underpricing of initial public offerings and its long run performance in Pakistan. Pakistan Journal of Social Sciences, 38(2), 747-755.
Sohail, M. K., & Raheman, A. (2010). Examining the short-run IPOs performance in state of economy: Normal, boom & recession. International Research Journal of Finance and Economics, 35, 173-186.
Song, S., Tan, J., & Yi, Y. (2014). IPO initial returns in China: Underpricing or overvaluation? China Journal of Accounting Research, 7(1), 31-49.
Tajuddin, A. H., Mohd-Rashid, R., Abdullah, N. A. H., & Abdul-Rahim, R. (2015). An empirical examination of over-subscription in the Malaysian IPO market. International Journal of Economics and Management, 9(1), 81-102.
Tajuddin, A. H., Rashid, R. M., Khaw, K. L.-H., & Yahya, N. C. (2019). Shariah-compliant status and investors' demand for IPOs: the effects of information asymmetry. International Journal of Islamic and Middle Eastern Finance and Management, 12(4), 489-508.
Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of Accounting and Economics, 8(2), 159-172.
Tutuncu, L. (2020). Valuation and underpricing of Turkish IPOs. Journal of Business Economics and Management, 21(1), 157-179.
Yar, M. M. S., & Javid, A. Y. (2014). Liquidity Benefits from Underpricing: Evidence from Initial Public Offerings Listed at Karachi Stock Exchange. PIDE Working Papers 2014 No. 101, SSRN eLibrary.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.