Factors Influencing Subscription of IPO in Bangladesh
DOI:
https://doi.org/10.31436/ijema.v25i3.480Abstract
Due to huge loss in the secondary market during the 2010-2011 stock market crash, small investors in Bangladesh involved themselves in IPO investment. This study, based on secondary data, depicts the IPO market in Bangladesh and also identifies the factors influencing IPO subscription times. The study documented 85% growth in the listed companies on the Dhaka Stock Exchange (DSE) through IPO during the last decade with an average number of 14.80 IPOs per year. Fixed price method was followed in most of the IPOs; whereas the book building method was followed in only 2.70% of IPOs. Earnings forecast, a very common phenomenon of IPO prospectus in developed countries, was hardly ever found in the IPO prospectus in Bangladesh. Multiple regression model indicates that market lot has significant positive, whereas EPS and offer price have insignificant negative influence on IPO subscription times. The current study has explored the existing scenario of IPOs in Bangladesh that will help regulators to undertake proper course of action in developing the stock market in Bangladesh. The study will help issuers assessing the potential subscription condition of an IPO candidate company and also contribute to the existing stock of knowledge.
References
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Ball, Ray, and Lakshmanan Shivakumar. “Earnings Quality at Initial Public Offerings.†Journal of Accounting and Economics 45, no. 2-3 (2008): 324-49.
Bateni, Leila, and Farshid Asghari. “Study of Factors Affecting the Initial Public Offering (IPO) Price of the Shares on the Tehran Stock Exchange.†Research in World Economy 5, no. 2 (2014): 68-73.
Brau, James C., and Stanley E. Fawcett. “Initial Public Offerings: An Analysis of Theory and Practice.†The Journal of Finance 61, no. 1 (2006): 399-436.
Chan, Anthony Moung Yin, Cora Luk Kam Sit, Millie Mei Li Tong, Daphne Chi Kit Wong, and Ricko Wai Yiu Chan. “Possible Factors of the Accuracy of Prospectus Earnings Forecast in Hong Kong.†International Journal of Accounting 31, no. 3 (1996): 381-98.
Chena, Gongmeng, Michael Firtha, and Gopal V. Krishnanb. “Earnings Forecast Errors in IPO Prospectuses and their Associations with Initial Stock Returns.†Journal of Multinational Financial Management 11, no. 2 (2001): 225-40.
Cohen, Boyd D., and Thomas J. Dean. “Information Asymmetry and Investor Valuation of IPOs: Top Management Team Legitimacy as a Capital Market Signal.†Strategic Management Journal 26, no. 7 (2005): 683-90.
Dhaka Stock Exchange (DSE). “IPO Timelines.†www.dsebd.org/listing_timeline.php.
Dube, Akhilesh K. A Beginner’s Guide to Investing. Bhopal, India: Indra Publishing House, 2012.
Faisal, Fahim, and Syed Muntasir Ridwan. “Infrastructure Financing through Capital Market in Bangladesh.†World Journal of Social Sciences 2, no. 5 (2012): 31-41.
Faruqui, Farhan, and Md. Habibur Rahman. “Factors Influencing the Crash in the Share Market in Dhaka Stock Exchange.†Research Journal of Finance and Accounting 4, no. 7 (2013): 139-47.
Government of Bangladesh. Securities and Exchange Commission (Public Issue) Rules, 2006. 2006.
Gounopoulos, Dimitrios. “Associations between Management Forecast Accuracy and Pricing of IPOs in Athens Stock Exchange.†Multinational Finance Journal 15, no. 3-4 (2011): 235-72.
Hammami, Maha, and Olfa Benouda Sioud. “The Reliability of Management Earnings Forecasts in IPO Prospectuses: A Study of Managers’ Forecasting Preferences.†International Journal of Social, Behavioral, Educational, Economic and Management Engineering 8, no. 6 (2014): 1623-32.
Hoque, Monzurul, and Mohammad Musa. “The Long Term Performance of IPOs in Bangladesh.†Journal of Business Administration, IBA, Dhaka 27, no. 1&2 (2001): 27-45.
Ibbotson, Roger G., Jody L. Sindelar, and Jay R. Ritter. “The Market's Problems with the Pricing of Initial Public Offerings.†Journal of Applied Corporate Finance 7, no. 1 (1994): 66-78.
Islam, Md. Aminul, Ruhani Ali, and Zamri Ahmad. “Underpricing of IPOs: The Case of Bangladesh.†Global Economy and Finance Journal 3, no. 1 (2010a): 44-61.
Islam, Md. Aminul, Ruhani Ali, and Zamri Ahmad. “An Empirical Investigation of the Underpricing of Initial Public Offerings in the Chittagong Stock Exchange.†International Journal of Economics and Finance 2, no. 4 (2010b): 36-46.
Islam, Mohammad Sadiqul. “The Behavior of IPO Underpricing in Bangladesh.†Journal of Finance and Banking 5, no. 1&2 (1999): 87-109.
Islam, Mohammad Sadiqul, and Sirajum Munira. “IPO Flipping and its Determinants in Bangladesh.†Dhaka University Journal of Business Studies 25, no. 1 (2004): 1-24.
Islam, Rakibul. “An Empirical Investigation of Short Runs IPO Underpricing: Evidence from Dhaka Stock Exchange.†IOSR Journal of Economics and Finance (IOSR-JEF) 4, no. 4 (2014): 1-11.
Lai, Ping-Fu, and Chi-Fung Lo. “The Empirical Study of IPO in Hong Kong China: with the Initial Offer Price to the IPO Reflected its Fundamental Information Significantly.†International Journal of Business and Social Science 3, no. 19 (2012): 23-41.
Low, Soo-Wah, and Othman Yong. “Explaining Over-subscription in Fixed-price IPOs: Evidence from the Malaysian Stock Market.†Emerging Markets Review 12, no. 3 (2011): 205-16.
New Age. “20PC IPO Quota for Affected Investors: BSEC to Request Fin Min to Extend Time.†May 7, 2014.
Rahim, Ruzita Abdul, Ros Zam Zam Sapian, Othman Yong, and Noor Azryani Auzairy. “Flipping Activity and Subsequent Aftermarket Trading in Malaysian Initial Public Offerings(IPOs).†Asian Academy of Management Journal of Accounting and Finance 9, no. 1 (2013): 109-28.
Rahman, Md. Tariqur, and Khondker Golam Moazzem. “Capital Market of Bangladesh: Volatility in the Dhaka Stock Exchange (DSE) and Role of Regulators.†International Journal of Business and Management 6, no. 7 (2011): 86-93.
Rashida, Amreen. “IPO Procedure: An Analysis on the Book Building Method in Bangladesh.†The International Journal of Social Sciences 7, no. 1 (2013): 172-180.
Share Market Inquiry Committee. Dhaka: Ministry of Finance, Government of Bangladesh, 2011. http://www.mof.gov.bd/en/budget/share/report.pdf (accessed March 15, 2015).
Sahoo, Seshadev, and Prabinxt Rajib. “Determinants of Pricing IPOs: An Empirical Investigation.†South Asian Journal of Management 19, no. 4 (2012): 59-87.
Tajuddin, Ahmad Hakim, Rasidah Mohd-Rashid, Nur Adiana Hiau Abdullah, and Ruzita Abdul-Rahim. “An Empirical Examination of Over-subscription in the Malaysian IPO Market.†International Journal of Economics and Management 9, Special Issue (2015): 81-102.
Ball, Ray, and Lakshmanan Shivakumar. “Earnings Quality at Initial Public Offerings.†Journal of Accounting and Economics 45, no. 2-3 (2008): 324-49.
Bateni, Leila, and Farshid Asghari. “Study of Factors Affecting the Initial Public Offering (IPO) Price of the Shares on the Tehran Stock Exchange.†Research in World Economy 5, no. 2 (2014): 68-73.
Brau, James C., and Stanley E. Fawcett. “Initial Public Offerings: An Analysis of Theory and Practice.†The Journal of Finance 61, no. 1 (2006): 399-436.
Chan, Anthony Moung Yin, Cora Luk Kam Sit, Millie Mei Li Tong, Daphne Chi Kit Wong, and Ricko Wai Yiu Chan. “Possible Factors of the Accuracy of Prospectus Earnings Forecast in Hong Kong.†International Journal of Accounting 31, no. 3 (1996): 381-98.
Chena, Gongmeng, Michael Firtha, and Gopal V. Krishnanb. “Earnings Forecast Errors in IPO Prospectuses and their Associations with Initial Stock Returns.†Journal of Multinational Financial Management 11, no. 2 (2001): 225-40.
Cohen, Boyd D., and Thomas J. Dean. “Information Asymmetry and Investor Valuation of IPOs: Top Management Team Legitimacy as a Capital Market Signal.†Strategic Management Journal 26, no. 7 (2005): 683-90.
Dhaka Stock Exchange (DSE). “IPO Timelines.†www.dsebd.org/listing_timeline.php.
Dube, Akhilesh K. A Beginner’s Guide to Investing. Bhopal, India: Indra Publishing House, 2012.
Faisal, Fahim, and Syed Muntasir Ridwan. “Infrastructure Financing through Capital Market in Bangladesh.†World Journal of Social Sciences 2, no. 5 (2012): 31-41.
Faruqui, Farhan, and Md. Habibur Rahman. “Factors Influencing the Crash in the Share Market in Dhaka Stock Exchange.†Research Journal of Finance and Accounting 4, no. 7 (2013): 139-47.
Government of Bangladesh. Securities and Exchange Commission (Public Issue) Rules, 2006. 2006.
Gounopoulos, Dimitrios. “Associations between Management Forecast Accuracy and Pricing of IPOs in Athens Stock Exchange.†Multinational Finance Journal 15, no. 3-4 (2011): 235-72.
Hammami, Maha, and Olfa Benouda Sioud. “The Reliability of Management Earnings Forecasts in IPO Prospectuses: A Study of Managers’ Forecasting Preferences.†International Journal of Social, Behavioral, Educational, Economic and Management Engineering 8, no. 6 (2014): 1623-32.
Hoque, Monzurul, and Mohammad Musa. “The Long Term Performance of IPOs in Bangladesh.†Journal of Business Administration, IBA, Dhaka 27, no. 1&2 (2001): 27-45.
Ibbotson, Roger G., Jody L. Sindelar, and Jay R. Ritter. “The Market's Problems with the Pricing of Initial Public Offerings.†Journal of Applied Corporate Finance 7, no. 1 (1994): 66-78.
Islam, Md. Aminul, Ruhani Ali, and Zamri Ahmad. “Underpricing of IPOs: The Case of Bangladesh.†Global Economy and Finance Journal 3, no. 1 (2010a): 44-61.
Islam, Md. Aminul, Ruhani Ali, and Zamri Ahmad. “An Empirical Investigation of the Underpricing of Initial Public Offerings in the Chittagong Stock Exchange.†International Journal of Economics and Finance 2, no. 4 (2010b): 36-46.
Islam, Mohammad Sadiqul. “The Behavior of IPO Underpricing in Bangladesh.†Journal of Finance and Banking 5, no. 1&2 (1999): 87-109.
Islam, Mohammad Sadiqul, and Sirajum Munira. “IPO Flipping and its Determinants in Bangladesh.†Dhaka University Journal of Business Studies 25, no. 1 (2004): 1-24.
Islam, Rakibul. “An Empirical Investigation of Short Runs IPO Underpricing: Evidence from Dhaka Stock Exchange.†IOSR Journal of Economics and Finance (IOSR-JEF) 4, no. 4 (2014): 1-11.
Lai, Ping-Fu, and Chi-Fung Lo. “The Empirical Study of IPO in Hong Kong China: with the Initial Offer Price to the IPO Reflected its Fundamental Information Significantly.†International Journal of Business and Social Science 3, no. 19 (2012): 23-41.
Low, Soo-Wah, and Othman Yong. “Explaining Over-subscription in Fixed-price IPOs: Evidence from the Malaysian Stock Market.†Emerging Markets Review 12, no. 3 (2011): 205-16.
New Age. “20PC IPO Quota for Affected Investors: BSEC to Request Fin Min to Extend Time.†May 7, 2014.
Rahim, Ruzita Abdul, Ros Zam Zam Sapian, Othman Yong, and Noor Azryani Auzairy. “Flipping Activity and Subsequent Aftermarket Trading in Malaysian Initial Public Offerings(IPOs).†Asian Academy of Management Journal of Accounting and Finance 9, no. 1 (2013): 109-28.
Rahman, Md. Tariqur, and Khondker Golam Moazzem. “Capital Market of Bangladesh: Volatility in the Dhaka Stock Exchange (DSE) and Role of Regulators.†International Journal of Business and Management 6, no. 7 (2011): 86-93.
Rashida, Amreen. “IPO Procedure: An Analysis on the Book Building Method in Bangladesh.†The International Journal of Social Sciences 7, no. 1 (2013): 172-180.
Share Market Inquiry Committee. Dhaka: Ministry of Finance, Government of Bangladesh, 2011. http://www.mof.gov.bd/en/budget/share/report.pdf (accessed March 15, 2015).
Sahoo, Seshadev, and Prabinxt Rajib. “Determinants of Pricing IPOs: An Empirical Investigation.†South Asian Journal of Management 19, no. 4 (2012): 59-87.
Tajuddin, Ahmad Hakim, Rasidah Mohd-Rashid, Nur Adiana Hiau Abdullah, and Ruzita Abdul-Rahim. “An Empirical Examination of Over-subscription in the Malaysian IPO Market.†International Journal of Economics and Management 9, Special Issue (2015): 81-102.
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Published
2017-11-30
How to Cite
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. https://doi.org/10.31436/ijema.v25i3.480
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