Modelling of IPO Underpricing in Bangladesh

Abstract

This study shows the degree of underpricing in initial public offering in Bangladesh and the relationship of underpricing with some company specific and issue specific variables. To measure the degree of underpricing both initial return (IR) and market adjusted initial returns (MAIR) have been used. The study reveals 284% average initial return and 266% average market adjusted return for the first listing day of the IPOs for the period 2007 to 2016. Regression analysis is used to find the relationship between various predictor variables and underpricing. The regression analysis depicts that issue price, oversubscription, market return and size of the firm have significant effect on initial return. Similarly, market adjusted initial return is also influenced by issue price, oversubscription and size of the firm have significant effect over. The study found that issue size, age of the firm, floating percentage of share has very little relationship with underpricing in Bangladesh.