Macroeconomic Factors and Their Influences on Initial Public Offering (IPO) in Bangladesh

Abstract

Purpose: This paper examines the impact of macroeconomic factors such as GDP, inflation, interest rate, stock market index, and remittance on the number of IPOs (Initial Public Offering), total IPO proceeds and average IPO proceeds in Bangladesh 2007/08 to 2017/18. This study aims to find out the external factors affecting the decision of the firms to go public in the capital market of Bangladesh and to establish literature with proper analysis. Methodology: The nature of the research is quantitative and the research design is descriptive. However, the study is based on secondary data from multiple sources for analyzing the dependent and independent variables. The data were analyzed using quantitative research techniques such as descriptive, correlation, and multiple regression analysis. It was then presented a regression model as a data analysis technique, which would finally identify those variables that have a significant impact on IPOs issued. Findings: The hypothesis that the macroeconomic variables have explanatory power for the number of IPOs could not be highly supported by empirical evidence. On the other hand, empirically, macroeconomic factors can explain total IPO proceeds and average IPO proceeds. Inflation rate and remittance negatively correlate with the number of IPO, but that is not significant. Stock market index and interest have a significant positive relationship with the number of IPO issued in a year. All the independent factors have a positive relationship with the total IPO proceeds, but only the stock market index has a significant relationship with the total IPO proceeds. The stock market index has a significant positive impact on average IPO proceeds raised in a year. Also, the inflation rate, remittance, and interest rate positively correlate with the average IPO proceeds. Limitations: The stock market data are challenging to collect, and investors are reluctant to disclose macroeconomic variables. Another major limitation is found that was knowledge gaps between the parties. Practical Implications: The study findings can have a few important implications to different stakeholders of Bangladesh's capital market, including investors, private companies, market-makers, and market regulators like BSEC, Bangladesh bank, Ministry of Finance, and Government agencies. Specifically, the study findings can help them develop a critical understanding of the macroeconomic indicators and their significant impact on Bangladesh's primary market and overall capital market. Originality: In fact, multiple research activities have been conducted abroad regarding macroeconomic factors and their influences on the initial public offering, but not a single work similar to this research topic has been done in Bangladesh. Researchers want to investigate the factors that influence IPO and help the investors and decision-makers.