Why Do Firms Decide To Go Public? A Case Study of Karachi Stock Exchange

Abstract

This study empirically examines the motivations of going public decision. This study used pre-IPO characteristics and ex-post consequences of IPO firms to address the exceeding research objective. This study used a sample of 70 newly listed firms during 2000 to 2014 on Karachi Stock Exchange (KSE). In this study, a panel probit regression model is used to estimate the impact of fundamental factors on going public decision. The results of this analysis reveal that larger-size firms, carrying high sales growth, more profitable, industry MTB ratio, and firms related general trade industry come into sight are significant determinants. Furthermore, this study also examined ex-post consequences of IPO firms by comparing with the same pre-IPO characteristics by using ‘Wilcoxon two-sample signed rank’ test. The results of this investigation reveal that: Going public decision is used (i) to dilute ownership, risk diversification, and reduction in external monitoring (ii) to finance their future investments and expansions, and (iii) to rebalance their capital structure