Intra-Industry Impacts of Initial Public Offerings: Evidence from Pakistan Stock Exchange

Abstract

This study has examined the relationship between IPO events with its competing firms in long run within the same industry and overall stock exchange. For this purpose, the study has been conducted on Pakistan Stock Exchange. A sample of 104 listed firms has been taken from Pakistan Stock Exchange (Psx) from 26 different industries. The study has covered a time span of nineteen years from 1998 to 2016, both years being included. Predominantly, the IPO event has been analyzed from three perspectives including initial returns, IPO proceeds and Lag time between IPO subscription and IPO listing date. To measure the impact of IPO on rival portfolios stock returns in short and long run, we Cumulative Abnormal Returns (CAR) and Buy and Hold Abnormal Returns (BHAR) respectively. For measuring intra-industry operating performance of rival portfolios we applied Wilcoxon significance test. The findings revealed IPO intra-industry effects are insignificant in short run while significant negative effects has been observed in long run. In addition, IPO abnormal returns and IPO proceeds has a significant negative relationship with rival’s stock returns in long run. Whereas, IPO lead time has no significant impact on rival’s portfolios in long run. This study is important from prospective of IPO activity and stock market of a developing economy