Can Offer Size and Transaction Volume Predict IPO Underpricing? Evidence from Emerging Markets in Africa
Abstract
The debate on why firms underprice initial public offering (IPO) has never been laid to rest. Driven by this phenomenon of IPO underpricing, this paper sought to examine the determinants of IPO underpricing in developing countries, using African countries as a case study. Specifically, the study examined the effect of offer size and transaction volume on IPO underpricing. Panel data was collected for all firms that issued IPOs in Nairobi Securities Exchange, Egyptian Exchange and Johannesburg Stock Exchange for a period of fifteen years (1996 to 2011). The results showed that transaction volume had a negative and significant effect on IPO underpricing (β = -0.074; p<0.05) while offer size had no significant effect (β = -0.035; p>0.05). The study recommends that issuers should take special consideration on transaction volume to maximize the return to investors.
Keywords: IPO Underpricing, Offer Size, Transaction Volume, Emerging Markets & Africa.
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