The Initial Return and Long Term Performance for Initial Public Offerings (IPOs) in Bangladesh: An Empirical Analysis

Abstract

"IPO" stands for an "initial public offering" of securities. The term is usually used when a business has decided to "go public" to raise substantial amounts of capital by offering ownership interests in the company to the public at large. Companies registered under the Company Act of 1913 (revised in 1994) as a public limited company or set up under a statute with a minimum paid-up capital of Tk. 10 million are eligible to apply for listing in the stock markets. Companies wanting to go public applied for approval from the Controller of Capital Issue (under Ministry of Finance), up until the middle of 1993. Later on the Securities Exchange Commission (SEC), upon its establishment on June 8, 1993, started to administer the process. The present study provides an empirical analysis of the market for new issues in Bangladesh for the sample period 2000 through 2005. A total of 43 new issues are included in the sample.The initial return and subsequent returns of IPQs is estimated and analyzed from a variety of perspectives. An analysis of the cost of going public is also done in the present study. Furthermore the sequence of events leading to the rise and fall of the IPQ market in Bangladesh are also described in details for the period 1991 through 1997. Despite the spectacular growth during the early to mid 1990s the market for new issues in Bangladesh is currently stagnant.