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http://dx.doi.org/10.13106/jafeb.2021.vol8.no1.237

Does the Pricing Mechanism Affect the IPO Flipping Activity in Pakistan?  

ANWAR, Ayesha (School of Economics, Finance & Banking, Universiti Utara Malaysia)
MOHD-RASHID, Rasidah (School of Economics, Finance & Banking, Universiti Utara Malaysia)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.1, 2021 , pp. 237-246 More about this Journal
Abstract
This paper explores the relationship between price mechanism and flipping activity of initial public offerings (IPOs) in Pakistan's emerging economy. This study uses a cross-sectional data set of 95 firms listed on Pakistan Stock Exchange from 2000 to 2019. This study employs the ordinary least square and quantile regression techniques to capture the relationship between price mechanism and flipping activity. The results show that book-built IPOs flip substantially less than fixed-price IPOs. This is consistent with the signaling theory assertion that roadshows are arranged by underwriters to capture investors' demand and set the offer prices of IPOs. If investors learn the fair values of quality IPOs, then the offer prices will be close to the intrinsic values, thus reducing flipping. The findings also provide conclusive evidence for understanding the usefulness of and the more relevant information regarding the pricing mechanism. In particular, it provides a better understanding of how companies actually use the pricing mechanism information in the flipping of IPO shares. The results of this study are also valuable to underwriters, and regulators, for instance, provides underwriters with the discretion to allocate the IPO shares and the SECP, in revising regulation on the disclosure of IPO pricing methods.
Keywords
Flipping; Fixed-Price Mechanism; Book-Building Mechanism; Pakistan's IPOs; Signaling;
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