Public Issue of Term Finance Certificate

Abstract

This research study examines the reaction of the stock market to the announcement of IPOs and TFCs. the Karachi Stock Market in recent times has been as one of the important emerging capital markets in the region which makes it is inevitable to investigate how it reacts to news. Recently announcements of IPOs and TFCs are gaining momentum in Pakistan, with increased public response. It is vital to analyse the impact that the announcements have on the Karachi Stock Exchange, since IPOs have a close link with the stock exchange. This study is an event study, analyzing the impact of the announcement of the IPOs on the Karachi Stock Exchange. For each event we formed three windows i.e. pre-event, event and post event. The stock index is the dependent variable whereas the event is the independent variable. Data includes the twenty four events and the stock index from 1997 until 2005. Multiple regression was applied using the SPSS software. The results were then analyzed to assess the reaction of the Karachi Stock Exchange to the announcement of the IPOs. The results from this study indicate that there is a significant relationship between the stock index and the announcement of the IPOs. The majority of the announcements of the IPOs resulted in an increased stock index. This can be witnessed by the significant increase in the stock index upon the announcement of IPOs by OGDC, KAPCO, leasing companies and banks.