Abstract
PurposeThe objectives of this study are twofold. First, it intends to investigate the symmetric link between initial public offering (IPO) variability and the determinants of the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment. Second, this study intends to examine the asymmetric link between IPO variability and the aforementioned determinants, namely the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment.Design/methodology/approachData from 1992 to 2018 were gathered from the country of Pakistan in order to achieve the above objectives. Augmented Dickey–Fuller (ADF) and Phillips Perron (PP) unit root tests were employed to determine the data's stationarity properties. The Auto Regressive Distributive Lags (ARDL) model was utilized to examine the symmetric links, and the Non-Linear Auto Regressive Distributive Lag Model (NARDL) was employed to determine the asymmetric links. While the long-run co-integration was examined using the ARDL bound test, the short-run dynamics were tested using the error correction method (ECM).FindingsThe macroeconomic variables of the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment are found to pose significant short-run and long-run symmetric and asymmetric effects on IPO variability. These results indicate the significance of the aforementioned variables in enhancing IPO variability. The findings also demonstrate the typical reactions of inflation, GDP and FDI towards negative and positive shocks in IPO variability and inflation. This evidence implies that Pakistan's poor capital market development is reflected in the country's weak macroeconomic factors. At the same time, the reduced IPO variability in the country also reflects the lack of confidence among prospective issuers and investors due to Pakistan's weak macroeconomic indicators.Originality/valueThis is the first study of its kind to properly investigate the symmetric and asymmetric effects of the macroeconomic variables on Pakistan's IPO variability.
Highlights
Factors drivingIn the context of the Pakistani market, 272 initial public offerings (IPOs) were offered between IPO variability1992 and 1997 but only one IPO exercise was held in 1998 and none in 1999 as a result of the country’s nuclear attempt, which saw the USA imposing various sanctions that hamperedPakistan’s development (Mehmood et al, 2021)
The findings suggest that the number IPO variability of IPOs will decline when the gross domestic product (GDP) growth rate is low
This study has examined the symmetric and asymmetric effects of the stock market index, treasury bill rate (TBR), inflation, GDP growth rate and foreign direct investment (FDI) on the variability of IPOs listed on the Pakistani stock exchange between January 2000 and December 2018
Summary
Pakistan’s development (Mehmood et al, 2021) This downward trend in IPO issuances persisted from 2000 to 2018, with only 93 firms going public during the period. This dismal number could be attributed to numerous macroeconomic factors, including terrorism activities, political instability, social security threats, low employment, low gross domestic product (GDP), as well as excessive inflation and interest rates. Uncertainties occur in raising the projected capital amounts from IPOs owing to poor macroeconomic performances, causing firms to delay their IPO exercises until the uncertainties dissolve. The entire business landscape may weaken during severe periods of uncertainty along with unfavourable macroeconomic factors, leading to lower consumption and output rates (Christiano et al, 2014)
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