Exploring the Factors Influencing the Underpricing of Initial Public Offerings (IPOs) in Bangladesh

Abstract

Purpose: This paper attempts to demonstrate the specific characteristics and factors that affect Initial Public Offerings (IPOs) underpricing in an emerging Capital Market, Bangladesh.
Methodology: The study developed a conceptual framework and tested hypotheses using multiple linear regression analysis. It collected data from 132 IPO companies in Bangladesh from 2011 to 2024.
Findings: The analysis indicates significant effects and a positive relationship between underpricing and the explanatory variables: Market Lot and oversubscription. However, Subscription period, Pre- IPO paid-up Capital, IPO size, and Offer Price have a negative relationship with the level of stock underpricing. Along with these factors, Premium, Earnings per share (EPS), Credit Rating, and Audit Quality do not significantly link to IPO but have a positive relationship with IPO Underpricing.
Implications: The study has explored the existing scenario of IPOs in Bangladesh, which will help regulators undertake the proper course of action in developing the stock market in Bangladesh. It also significantly impacts satisfying the needs of investors, issuers, and other stakeholders.
Originality: The study examined a larger sample and covered many sectors of IPO firms. The evidence relates to a new conceptual framework and an expanded model to identify and analyze the various elements contributing to the underpricing of IPOs in Bangladesh's capital market.