Determinants of IPO pricing in Emerging markets and the Risks faced by companies that go public

salie, mohamed abid (2013) Determinants of IPO pricing in Emerging markets and the Risks faced by companies that go public. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Abstract

This paper aims to investigate and answer two questions. Firstly, the impact made by four chosen determinants of initial public offering (IPO) prices in emerging markets and the variation effects of these determinants across emerging markets. The chosen determinants are net profit margin, net book value per share, cash flows and gearing. A database of 131 IPO made after the year 2000 in India, South Africa China Turkey and Russia are considered in this study. The study revealed that on an overall basis, when all countries were considered together, all four determinants had a positive correlation with IPO price, however only cash flow and net book value per share showed are fairly significant correlation. When the data in each country was considered separately I found contrasting results amongst them. I found that from the determinants that were chosen, cash flow and netbook value has a reasonable impact on offer price, however gearing and net profit are not such good indicators of IPO offer price in these markets. However, an overall limitation of our study was that the impact of external factors on IPO prices was not considered. External factors could significantly alter the correlation that four chosen variables have on the offer price.

Second question that is addressed in this paper is the internal risks that companies under go when going public. I have chosen ten companies from the Indian market which have gone public in 2010 and selected three internal risks faced by these companies which are, risks of promoters acquiring controlling interest of the company, risk of companies having negative cash flows and profits prior to going public and risk of not having a trading history. I have analysed how companies have dealt with the principle agent problem when the company is acquired by the promoters and further have discussed how the companies have performed despite the negative earnings and cash flows and I also found that the risk of failing to increase the financial performance of these companies are reflected on the performance of the shares of the company. Further I can find that companies which have had higher subscription rates for the IPO’s have managed to control the risk of not having a previous trading history, thereby having a higher first day closing price than the initial offer price.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 28 Mar 2014 16:28
Last Modified: 19 Sep 2016 15:16
URI: http://eprints.nottingham.ac.uk/id/eprint/26774

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