Determinants of Under Pricing of Initial Public Offerings and its Long Run Performance in Pakistan

Abstract

This research study is focus on underpricing of different nature of corporations listed on Pakistan Stock Exchange (PSE) for a period of 2010-2015.The study considered initial public offerings (IPOs) and its long run performance on a single year (twelve month) basis. Furthermore, the study also focused on the determinants of underneath pricing. The study was carried out on the link between IPOs and underpricing of twenty six IPOs of Pakistan Stock Exchange for a period of 2010 to 2015 and was limited to those of IPOs of common stock only. The underpricing was taken as dependent variable and whereas market capitalization and market were taken as independent variables.Multiple Regression Analysis was taken to sort out the impact of independent variables on the dependable variable. It has been proved that market volatility has significantly positive link between underpricing, whereas market capitalization marked and linked with a positive statistically relationship towards underpricing. The ex ante was considered negative and statistically insignificant for underpricing. Long run performance of IPOs was calculated via Cumulative Abnormal Return (CAR) and Buy and Hold Return (BHAR).