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

International Journal of Management, Accounting, and Economics, 7(12), 708–725.

18 Pages Posted: 9 Apr 2021

See all articles by Md. Tahidur Rahman

Md. Tahidur Rahman

Bangladesh Army International University of Science and Technology (BAIUST) - Department of Business Administration

Syed Zabid Hossain

University of Rajshahi - Department of Accounting and Information Systems

Md. Anwarul Haque

University of Rajshahi - Department of Accounting and Information Systems

Md. Abu Hanif Ashik

Bangladesh Army International University of Science and Technology

Date Written: April 8, 2021

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: IPO motives, Primary market, Book-building, IPO proceed utilization, Bangladesh capital market

JEL Classification: G11, G23, G24

Suggested Citation

Rahman, Md. Tahidur and Hossain, Syed Zabid and Haque, Md. Anwarul and Ashik, Md. Abu Hanif, Exploration of IPO Motives, Oversubscription and Flotation Costs: Evidence from Bangladesh (April 8, 2021). International Journal of Management, Accounting, and Economics, 7(12), 708–725. , Available at SSRN: https://ssrn.com/abstract=3822411

Md. Tahidur Rahman (Contact Author)

Bangladesh Army International University of Science and Technology (BAIUST) - Department of Business Administration ( email )

Comilla Cantonment
Comilla, 3500
Bangladesh

Syed Zabid Hossain

University of Rajshahi - Department of Accounting and Information Systems ( email )

Zimbabwe
+8801718577481 (Phone)

Md. Anwarul Haque

University of Rajshahi - Department of Accounting and Information Systems ( email )

Bangladesh

Md. Abu Hanif Ashik

Bangladesh Army International University of Science and Technology ( email )

Cumilla Cantonment
South Side of Under Pass
Cumilla, 3501
Bangladesh

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