International Journal of Management, Accounting and Economics

Monthly Publication

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Editorial Board

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Exploration of IPO Motives, Oversubscription and Flotation Costs: Evidence from Bangladesh

Document Type : Original Research

Authors

1 Department of Business Administration, Bangladesh Army International University of Science and Technology, Cumilla, Bangladesh

2 Department of Accounting and Information Systems, University of Rajshahi, Rajshahi, Bangladesh

Abstract

This study intended to explore the IPO motives and the factors that contributed to IPO oversubscription in Bangladesh. Based on hand-collected data from 101 sample IPO prospectus during 2010–19, the study found an average of 10 IPOs per year, mostly (90%) through the fixed-price method. Among the sample companies, 34.7% were in the textile sector, followed by 17.8% in the engineering sector and 12.9% in the pharmaceuticals & chemical sector. This study observed an average subscription times of 23.41, which was much lower than in some other South Asian countries. Regarding the use of IPO proceeds, loan settlement was the prime motive, followed by capital expenditure, and working capital financing. Companies expensed around 6% of the total IPO proceeds as flotation cost. Although the detailed disclosure of the use of IPO proceeds in the prospectus is a common and expected feature, it was found absent in around 12% of companies. The logistic regression model found a statistically significant influence of lot size (LOT), post-IPO capital (PIC), and flotation cost (FTC) on oversubscription times (OST). The contribution of FTC to OST was a novel finding of this study. The study also found the absence of large and reputed domestic and multinational conglomerates in the listing through IPOs. Thus, the current study recommends regulators should take proper drives to customize and familiarize the book-building method, which can entice good companies for listing in stock exchanges through IPO.

Keywords

Main Subjects

References
Amor, S. B., & Kooli, M. (2017). Intended use of proceeds and post-IPO performance. The Quarterly Review of Economics and Finance(65), 168–181.
Andriansyah, A., & Messinis, G. (2016). Intended use of IPO proceeds and firm performance: a quantile regression approach. Pacific-Basin Finance Journal, 36, 14–30.
Arora, N., & Singh, B. (2020). Determinants of oversubscription of SME IPOs in India: evidence from quantile regression. Asia-Pacific Journal of Business Administration, https://doi.org/10.1108/APJBA-05-2020-0160.
Ball, R., & Shivakumar, L. (2008). Earnings Quality at Initial Public Offerings. Journal of Accounting and Economics, 45(2-3), 324–349.
Bateni, L., & Asghari, F. (2014). study of factors affecting the initial public offering (IPO) price of the shares on the Tehran stock exchange. Research in World Economy, 5(2), 68–73.
Brau, J. C., & Fawcett, S. E. (2006). Initial public offerings: an analysis of theory and practice. The Journal of Finance, 61(1), 399–436.
Chan, A. M., Sit, C. L., Tong, M. M., Wong, D. C., & Chan, R. W. (1996). Possible factors of the accuracy of prospectus earnings forecast in Hong Kong. International Journal of Accounting, 31(3), 381–398.
Cohen, B. D., & Dean, T. J. (2005). Information Asymmetry and Investor Valuation of IPOs: Top Management Team Legitimacy as a Capital Market Signal. Strategic Management Journal, 26(7), 683–690.
Dambra, M., Field, L. C., & Gustafson, M. T. (2015). The JOBS act and IPO volume: evidence that disclosure costs affect the IPO decision. Journal of Financial Economics, 116(1), 121–143.
Faisal, F., & Ridwan, S. M. (2012). Infrastructure Financing through Capital Market in Bangladesh. World Journal of Social Sciences, 2(5), 31–41.
Fan, P. (2019). Debt retirement at IPO and firm growth. Journal of Economics and Business, 101, 1–16.
Hasan, T., & Quayes, S. (2008). Underpricing of initial public offerings in Bangladesh. Applied Financial Economics Letters, 4, 5–8.
Hoque, M., & Musa, M. (2001). The Long Term Performance of IPOs in Bangladesh. Journal of Business Administration, IBA, Dhaka, 27(1&2).
Hossain, M. F., & Siddiquee, M. (2007). IPO flotation costs in Bangladesh during 1983-2006. Available at SSRN 1018321 .
Islam, M. A., Ali, R., & Ahmad, Z. (2010). Underpricing of IPOs: the case of Bangladesh. Global Economy and Finance Journal, 3(1), 44–61.
Islam, M. S., & Munira, S. (2004). IPO Flipping and its Determinants in Bangladesh. Dhaka University Journal of Business Studies, 25(1), 1–23.
Karim, A. K., Zijl, T. v., & Mollah, S. (2013). Impact of board ownership, CEO‐chair duality and foreign equity participation on auditor quality choice of IPO companies. International Journal of Accounting & Information Management, 21(2), 148–169.
Low, S.-W., & Yong, O. (2011). Explaining over-subscription in fixed-price IPOs — evidence from the Malaysian stock market. Emerging Markets Review, 12(3), 205–16.
Mehmood, W., Mohd-Rashid, R., & Ahmad, A. H. (2020). Impact of pricing mechanism on IPO oversubscription: evidence from Pakistan stock exchange. Pacific Accounting Review, 32(2), 239–254.
Ooi, J. T., Mori, M., & Wong, W. C. (2019). Rationale behind IPO underpricing: evidence from Asian REIT IPOs. Real Estate Economics, 47(1), 104–137.
Rahim, R. A., Sapian, R. Z., Yong, O., & Auzairy, N. A. (2013). Flipping activity and subsequent aftermarket trading in Malaysian initial public offerings(IPOs). Asian Academy of Management Journal of Accounting and Finance, 9(1), 109–128.
Rahman, M. T. (2017). Revaluation of fixed assets before IPO: a study on textile industry in Bangladesh. Journal of Finance and Accounting, 5(5), 200–205.
Rahman, M. T., Hossain, S. Z., & Omar, N. (2017). Factors influencing subscription of IPO in Bangladesh. International Journal of Economics, Management and Accounting, 25(3), 529–548.
Rashida, A. (2013). IPO procedure: an analysis on the book building method in Bangladesh. The International Journal of Social Sciences, 7(1), 172–180.
Sahoo, S., & Rajib, P. (2012). Determinants of pricing IPOs: an empirical investigation. South Asian Journal of Management, 19(4), 59–87.
Silva, A., & Bilinski, P. (2015). Intended use of proceeds, underwriter quality and the long‐run performance of SEOs in the UK. Journal of Business Finance & Accounting, 40(9-10), 1282–1309.
Wyatt, A. (2014). Is there useful information in the ‘use of proceeds’ disclosures in IPO prospectuses? Accounting & Finance, 54(2), 625–667.
Yong, O., Yatim, P., & Sapian, R. Z. (2002). Size of offer, over-subscription ratio and performance of Malaysian IPOs. Malaysian Management Journal, 16(1&2 ), 35–51.
International Journal of Management, Accounting and Economics
Volume 7, Issue 12 - Serial Number 77
December 2020
Pages 708-725
Files
Share
How to cite
Statistics