The Relationship between IPO Price and Liquidity: Empirical Evidences from Iran

Abstract

The underpricing of initial public offerings (IPOs) is generally explained with asymmetric information and risk. We complement these traditional explanations with a new theory where investors worry also about the after-market illiquidity that may result from asymmetric information after the IPO. The less liquid the aftermarket is expected to be, and the less predictable its liquidity, the larger will be the IPO underpricing. Our model blends such liquidity concerns with signaling theory. The model's predictions are supported by evidence for 36 IPOs from Tehran Stock Exchange between 2006 and 2012. Using Hui & Heubel ratio of liquidity, we find that after-market liquidity is an important determinant of IPO pricing. Practical implementation-the finding of the study could be helpful for university students and users of financial information and other financial analysts in capital market.

The Variability of IPO Issuance: Evidence from Pakistan Stock Exchange

“…However, the low number of IPOs continued from 2000 onwards, and the pattern remained the same in 2017 with only three IPOs. Angelini and Foglia (2018) assert that macroeconomic factors are the true cause of the low number of IPOs. Figure 2 shows the sector-wise number of IPOs and the highest number of IPOs in the technical communication and investment banking sectors, which are the most prominent in Pakistan.…”

“…The present study investigated the influence of local macroeconomic and capital market variables on the number of IPOs in the emerging market of Pakistan. Based on the aforementioned research objectives, this study compiled the inflation, GDP growth rate, political stability, lending interest rate and underpricing to analyse their impacts on the number of IPOs (Ameer, 2012; Angelini & Foglia, 2018; Çolak et al, 2017; Dicle & Levendis, 2018). Following the theoretical arguments and empirical evidences from another market, this study argues that macroeconomic variables have significant influences on the number of IPOs’ issuance in the Pakistani market.…”

“…The reason for the decreasing trend in Pakistan might be due to various macroeconomic factors such as terrorist activities, political stability, social security issues, low employment rate, low gross domestic product (GDP), high inflation rate and high interest rate. Factors influencing the number of IPO issuance and macroeconomic variables were investigated in developed and developing countries (Ameer, 2012; Angelini & Foglia, 2018; Tran & Jeon, 2011), but there was no study on Pakistan’s market. Therefore, this study intends to extend the previous empirical evidence for the Pakistani market.…”

The Effect of Bank Recapitalization and Corporate Governance on Performance of Banking Sector: A Proposed Conceptual Framework

“…The authors further revealed that raising equity capital via IPO and the current financial ecosystem provides many opportunities for company's owners to raise resources in multiple capital markets. However, Bateni et al (2014) reported that the Public offering of securities has the following advantages for the disseminators, gaining capital for growth and development of activities, gaining useful information via the expert analyst, to increase the company's performance, the suppliers of financial sources and investors will trust more. Similarly, Loughran and Ritter (1995) documented that a reputable underwriter reduces the long-run underperformance associated with IPO.…”

Moderating Effect of Corporate Governance Between Recapitalization and Bank’s Performance: Conceptual Framework

“…Raising capital via IPOs and the current financial ecosystem provides many opportunities for company owners to raise resources in multiple capital markets (Sundarasen, Goel, & Zulaini, 2017). However, Bateni, Roodposhti, Poorzamani, and Asghari (2014) reported that the Public offering of securities has the following advantages for the disseminators.…”