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9.amalendu bhunia's rjfa 98 127

  1. 1. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011AN EMPIRICAL ANALYSIS OF GLOBAL AND DOMESTIC IPO ACTIVITIES IN SELECTED COUNTRIES BEFORE AND AFTER THE FINANCIAL CRISIS Malayendu Saha Professor, Department of Commerce University of Calcutta 87/1, College Street, Calcutta-700073 West Bengal, India m_saha2@rediffmail.com Amalendu Bhunia Reader, Department of Commerce Fakir Chand College, Diamond Harbour South 24-Parganas – 743331 West Bengal, India bhunia.amalendu@gmail.comAbstractThe financial crisis in the world over the past years has taken a heavy toll not only on most of the globaleconomies, but relentlessly impinges on the financial markets as well. This has affected the globalizedbanking system to an abrupt collapse and led the worldwide initial public offer (IPO) activity to plummet.However, the landscape has been transforming since the later part of 2009 with the emerging marketsdominated the proceedings both by value and in volume. Momentum has also been building rapidly in therevival of global economy as the Governments are taking steady initiatives to mitigate those damages andshield themselves from the next crisis. The paper aspires to make a comprehensive look at the global IPOmarket during the pre and post financial crisis period.Keywords: Global IPO activity, global financial crisis, domestic IPO activity, macro-economic variables1. IntroductionA considerable amount of fund raising by the corporate entities mostly comes either from internal sources,such as retained earnings or through external capital comprising bank credits, equity markets, corporatebond markets, external commercial borrowings, foreign direct investments and private equity. Facing thecombined burden of an economic recession and plunging capital market, many of the sources offirm-financing have dried up and slowed down corporate investment and growth. The crisis has not onlytaken a heavy toll on most of the economies in the world but severely affected the developed markets withtraditionally strong resources contingent, plunged in valuations in the mining and metal sectors, constrainedcredits and made abrupt collapse of the globalized banking system leading to worldwide initial publicofferings (IPO) activity to plummet by more than half. Moreover, shaky economic fundamentals, negative 98
  2. 2. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011investor sentiment and the volatility in equity markets have also acted as the major impediments to theperformance of global IPO market. Investor’s appetite for investment and companies’ willingness to listhave sternly undermined and impacted the global markets. Indeed, a newer literature, which includesShleifer and Wolfenzon (2002), Doidge, Karolyi, and Stulz (2007), and Stulz (2009) addresses the impactof financial globalization on IPO activity and suggests that home country laws and governance institutionsmay have opposite effects on domestic compared to global IPOs. The IPO landscape, however, hassignificantly transformed during the fourth quarter of 2009-10 with the emerging markets dominated theproceedings both by value and in volume. The volume of issues has increased steadily and grew inmomentum throughout the year supported by reinforced market fundamentals. Improvement has also seenbuilding rapidly in the global economy with the manufacturing sector started replenishing; the servicesector has underway escalating performance and a faster recovery of international trade and finance. Butthe panorama remains uneven and evidence is mounting of a multi-speed recovery. In this paper attemptsare made to have a comprehensive look at the global IPO market during the pre- and post-financial crisisperiod.1.1 The Genesis of the Crisis The financial crisis is assumed to be the consequence of (i) monetary policy implemented by FedReserve and (ii) growing global imbalances. The monetary policy, during the tenure of Allan Greenspan asits Chairman, fashioned a general impression that the interest on capital in a free market economy couldnever be at risk and that encouraged the use of high leverage as a source of sustainable high profits frombubbles. Fed’s monetary policy, as such, was responsible for two most unpleasant outcomes – speculationand leverage – which, in turn, induced the potential for a severe financial crisis. Moreover, the safe heavenappeal of the US dollar, as the key international currency and the assured high return on financialinvestment in the US capital market, led to a situation where the country maintained continually large andgrowing unsustainable current account deficits. In such a situation, countries with current account surplusesor large foreign exchange reserves kept investing in the US markets resulting imbalances and ending upwith crisis. In addition, the deterioration in credit standards facilitated by sustained easy monetary policyand deregulation encouraged opportunity for shifting of credit risk through securitization and contributingto the growth in credit to sub-prime segments. Earlier, it was quite difficult to securitize any type of loan,like sub-prime loans, and create a market for them. The financial engineers of the Wall Street, however,found the answer by two means: first by converting the pool of difficult to market loans into sub-primeresidential mortgage-backed securities (MBSs) and collateralised debt obligations (CDOs), and second, bycreating market for different tranches based on ‘ratings’. As the prices of toxic papers witnessed free fall,losses for the banks having exposure to such papers rose significantly, and the capital buffer turnedincreasingly inadequate, creating concerns for insolvency. Moreover, as the risk taking ability of thesebanks eroded, the flow of money for financing real activities became difficult resulting stress on capital.This was observed both in money market and credit market in the advanced economies. The real economicactivity started decelerating as aggregate demand, particularly private consumption and investmentopportunities shrank under the pressure of deleveraging, wealth loss associated with falling asset prices,rising unemployment, and deteriorating climate for investment and employment. In view of the adversefeedback in the advanced economies, policies were initiated by the respective governments aiming toaddress both financial trauma and economic downturn. 99
  3. 3. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 20111.2 Objectives The main objectives of the present work are to make a study about global IPO market during the pre-and post-financial crisis period. More specifically, it seeks to dwell upon mainly the following issues: 1. To view on the global IPO markets with top five country-level IPO markets during the pre- and post-financial crisis period; 2. To assess the global IPO activities during the pre- and post-financial crisis period; 3. To explore the relationship between global IPO activities and domestic IPO activities; 4. To examine the association of country-level macro-economic variables with global IPO activities.1.3 Hypotheses Keeping the above objectives in mind, the following null and alternative hypotheses have beenformulated and tested during the study period: Hypothesis 1 H0: When global IPO markets increases, country-level IPO market remains same; H1: When global IPO markets increases, country-level IPO markets also increases. Hypothesis 2 H0: There is no relationship between global IPO activities and the IPO activities of the domestic institutions; H1: There is a significant relationship between global IPO activities and the IPO activities ofthe domestic institutions.2. The Impact of the Crisis on Global IPO Market Though the global IPO market earlier had the harsh experience of weathering the 1987 market crash,the Russian debt implosion, the internet bubble bursting and the 9/11 episode, but the market proved to beremarkably hard-wearing in the current episode during the recent times. The unprecedented financial crisisaffected the global IPO issuance to come to a near halt during mid-2008. The overall drop in issuance washuge, with global proceeds falling 69% year-over-year, and the most established IPO markets, the US andEurope, were affected particularly hard. However, as assets being devalued globally, no IPO market wasinsulated from the financial crisis. Almost all countries saw a substantial drop in quantum of deals andfundraising, including the IPO powerhouses, such as BRIC countries (Brazil, Russia, India and China). In2008, the BRIC countries together hosted 163 deals worth US$28 billion, a 62% drop in deal numbers anda 76% decline in funds raised from 2007. Emerging markets, on the other, appeared to be relatively immuneto developed market economic meltdown. However, by the end of 2008, decoupling theories werethoroughly debunked as emerging markets suffered a severe loss in asset values, liquidity and investorconfidence, just as in the developed markets. During 2008, a total of 769 IPOs worldwide raised US$ 96 billion, representing a 61% drop in dealnumbers and a 67% decline in capital raised from 2007. The year experienced the lowest number of IPOssince at least 1995 and since 2003 for capital raised. Faced with the lowest market valuations since the1980s, a record number of prospective IPOs were withdrawn or postponed. By stark contrast, in 2007, theglobal IPO activity had soared to an all-time high with 2,014 deals and US$ 295 billion in capital raised. In2009, IPO markets continued to stagnate as volatile markets made it difficult to price and execute deals andglobally, a total of 51 IPOs in a wide range of sectors raised a mere US$1.4 billion. The largest offering forthe quarter was the US$828 million carve-out IPO of Mead Johnson Nutrition Co. on the New York Stock 100
  4. 4. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011Exchange (NYSE). However, in 2010, the IPO activity bounced back heavily throughout the world withproceeds of US$ 285 billion comprising 1,398 IPO deals. Insert Fig. 1 here In the face of weakening economic fundamentals and the subprime crisis, the US saw 31 IPOs worthUS$ 25.9 billion, an 82% fall in deal numbers and 24% decrease in funds raised from the previous year.Even so, in 2008, the US was the fundraising leader with 27% of the total global capital raised — this wasprimarily due to the massive Visa deal, which by itself, made up 21% of global fundraising. Latin Americanmarkets also ground to a halt in response to the global credit crunch, falling commodity prices and risinginterest rates. In 2008, the region saw just 10 IPOs together worth US$ 7.3 billion – estimating around 89%plunge in deal numbers and 81% decline in funds raised from the previous year. Regionally, Latin Americamade up 8% of global IPO funds raised in 2008, compared 13% in 2007. Europe, grappled with bleakearnings outlooks, sinking stock markets and looming recession, generated just 168 deals worth US$ 13.6billion, representing a 67% decrease in deal numbers and an 85% drop in funds raised from 2007. As aregion, the country accounted for 14% of global IPO fundraising, compared with a 32% share in 2007.Threatened by the global banking crisis, oil price fluctuations, exchange rate devaluations and acceleratinginflation, Russia saw only two deals worth US$ 1 billion — a collapse of 90% in deal numbers and 95% infunds collected during 2007. Chinese IPOs were sustained by a still fast growing economy andinfrastructural privatizations. In 2008, Greater China retained its lead globally in IPO deal numbers andcame in second only to the US in fundraising, with 127 deals worth a total of US$ 17.9 billion, a 51% dropin deal numbers and a 73% decline in funds raised from 2007. In India, the widening financial crisis helpedtrigger high volatility in the stock markets. During 2008, only 40 IPOs raised US$ 4.8 billion, representinga 62% drop in number of deals and 45% decline in funds raised as compared with 2007. India’s leadingenergy company, Reliance Power was the fourth largest IPO, raising US$ 3.0 billion on the Bombay StockExchange, but now traded far below its offer price. In the first half of 2008, the Middle East, particularlySaudi Arabia, emerged as a major player in the global IPO market. Shored up by vast liquidity, soaring oilprices, infrastructural development and privatizations, the Middle East yielded 51 IPOs worth US$ 13.2billion, representing 17% of global capital raised (compared with 7% in 2007). Although all industries contributed to 2008 global IPO activity, the top three sectors accounted for63% of total fundraising: financial services (US$ 26.0 billion), energy and power (US$ 18.3 billion) andmaterials (US$ 16.0 billion). By number of deals, the leading sectors for IPOs were materials (185offerings), industrials (108) and technology (84). The risk-averse investors, with all sectors down,discounted heavily on high-growth companies. In terms of funds raised, real estate, healthcare andtechnology industries declined the most, generating just US$ 1.8 billion (down 94% from 2007), US$ 1.1billion (down 89%) and US$ 1.9 billion (down 88%) respectively (World IPO Report, 2011). 2.1 The Pre- and Post-crisis Global IPO market The global IPO market during 2001-03 was extremely challenging. It took about two or three quartersbefore the IPO market came back strongly. However, the impact of the present crisis was most severe andwidely extended than the Great Depression. Though massive capital was allocated to equities, still therewere lot of capital being invested to new ventures on the follow-on front. IPOs came back slowly initiallywith activities accelerated during the last quarter of 2009 and deal flow was mostly dominated by maturecompanies, including a large number of private equity-backed firms. Though performance was not so 101
  5. 5. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011encouraging, this, however, represented a natural progression in the recovery of IPO market with buyersnegotiating hard on price amidst a saturation of leveraged buyouts (LBO) offerings. The financial sponsors,on the other, were not in favour of the current equity valuations, and viewed the IPO market as the bestavailable source of capital or liquidity. The revival of the global IPO market, however, showed unevenness. Major disparities were observedboth in quality and business of IPOs originating from the dominant global players like US and China. TheUS-based IPOs were led by LBOs and mortgage REITs, in contrast to the Chinese IPOs which raisedmoney to pour into her domestic infrastructure, its nascent pharmaceutical industry, and otherconsumer-oriented enterprises. In short, while the US IPO market activity was largely geared to healing theexcesses of overleveraging in private equity and real estate, the Chinese IPOs were mostly directed towardseconomic growth. PE-backed IPOs made a comeback (US $35 billion raised in 155 deals), particularly inthe US and Europe. The amount was more than double the US $16.8 billion raised in 2009, and almostthree times what sponsors rose in the trough of the recession in 2008. Nonetheless, activity is still behindthe peak of the cycle, when PE firms raised more than US $58 billion taking companies public in 2007. Onaverage PE-backed IPOs returned 27.2% in 2010. Performance of new issues during 2009 was muchimproved over 2008, although less impressive than historical standards. Early in the year, performance wasvery strong as growing companies with attractive valuations were taken public. However, during the laterpart, performance weakened because of a wave of private equity IPOs with more aggressive valuations andriskier companies taking advantage of the widening window of opportunity for IPOs. Asian issuers,particularly China and Hong Kong, continued to lead IPO activity in a five-year trend begun in 2006. Asiaraised the most IPO capital on record, making up almost 65% of the global proceeds (US $183.9 billion,789 deals). Greater China achieved record high for fund-raising during 2010, accounting for 46% of globalfunds raised – (US $131.8 billion in 509 deals) – a huge 165% increase from 2009. The recovery of globalIPO activity was most pronounced in the Hong Kong and Shanghai markets. Those two exchanges togetherraised $54 billion, which accounted for 51% of total global proceeds after the Chinese government ended anine-month IPO freeze on the Shanghai exchange, leading to a slew of companies going public that hadbeen waiting to raise capital for nearly a year or more. In global regions beyond the US and Asia, therecovery was less pronounced in Europe where the IPO proceeds fell significantly from 2008. However, thecontinent still produced $6 billion in fourth quarter, compared with under $500 million for the first ninemonths, which reflected that Europe’s IPO markets had begun to recover. By the end of 2010, IPOs onEuropean exchanges raised the highest volume since 2007 (US $36.7 billion in 252 deals), a huge 395%increase in fund-raising from 2009. The only other region to see a significant decline in IPO activity wasthe Middle East and Africa, which saw a continuation of the 2008 declines as risk appetite dried up forfrontier emerging markets. The biggest casualties were Saudi Arabia and the UAE, which together raised$10.5 billion last year in the midst of the oil price run-up but only generated $747 million in 2009. During the post-crisis period, though the international IPO market came from a variety of differentindustries, there emerged some common themes. In China, the rebound was largely driven by consumeroriented businesses, financial IPOs, and the country’s booming real estate sector. The financial theme, seenin US and China, was also echoed in other markets. The other notable theme that attracted most IPOs wasinfrastructure, particularly in China and notably in India. With investors attracted by growing economiesand large government stimulus packages, a huge amount of capital was raised by companies in the capital 102
  6. 6. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011goods, materials, energy, utilities and transportation sectors. India produced several large power generationIPOs, while China saw a host of engineering and construction companies, Europe’s largest new issue was aPolish utility service company. There were also IPOs by pipeline operators, shipping companies and energyproduct manufacturers. United States During 2008, though the largest US IPO was launched, the IPO market was subdued by the globaleconomic crisis, year-old recession and tight credit mechanism. The market generated US$27 billion in 37deals – an 82% decline in deal numbers and a 24% drop in fundraising compared with 2007. Even afterexcluding the hefty Visa deal, the average 2008 US IPO deal size was quite substantial at US$207.7million, a modest increase from the average deal size of US$198.8 million in 2007. The top IPO sectors forfunds raised in 2008 were financial services (insurance and banks) with US$20.0 billion raised (77% oftotal capital raised), energy and power generating US$2.7 billion and materials comprising metals, miningand paper yielding US$1.3 billion. The leading US IPO sectors in deal numbers were energy and powerwith eight deals, healthcare with six offerings and the financial sector with five new issuances, includingVisa. Technology, finance and healthcare were the three US sectors which had the most withdrawals fromthe IPO pipeline. The year 2009 for the US IPO market began as it had ended in 2008 – at a standstill. Onlyone company went public during the first three months of the year was by Mead Johnson Nutrition Co., theworld’s biggest baby formula maker. However, as the broader equity indices improved, the IPO volumeimproved sequentially in each of the next three quarters, buoyed by private equity-backed deals, mortgageREITs and Chinese ADRs. For the year, there were 67 US IPOs, up 47% from 2008. Since the IPO markethas shrunk, many private companies may eventually succumb to a merger or an acquisition. In 2008, 59%of funds raised through follow-on deals came from financial companies seeking capital to repair balancesheets or to finance acquisitions. In Latin America, the number of IPOs was roughly the same in 2009 as in2008. In 2009, nine IPOs raised a total of US$ 13.3 billion, whereas, 8 IPOs raised US$ 5.2 billion in 2008.The Brazilian equity market led the Latin American IPO market. Of the US$ 13.3 billion raised in LatinAmerica, nearly US$ 13.2 billion was raised by Brazilian companies. Chile was the only other LatinAmerican country to have an IPO in 2009, with three companies raising a total of US$ 110.0 million. Insert Fig. 2 here The year 2010 saw the highest yearly fundraising on US exchanges since 2007 as the US emergedfrom the recession (US$ 44 billion in 163 IPOs). About 40% of the 2010 amount, however, came from thesecond-largest IPO in US history – the US$18.1 billion listing of automobile manufacturer General Motors(GM) on the NYSE and Toronto. The US raised just 15% of global proceeds, a 60% increase in value fromthe same period in 2009 but below its past 10 year average levels of 28%. Demand for capital byfast-growth companies is still driving the IPO market in 2011, including many PE-or VC-backed companiesor small cap China-based listings. These IPOs accounted for more than two-thirds of all US deals,reflecting the eagerness of the financial sponsors to monetize investments made earlier in the decade. China Following an unprecedented boom in 2006-07, China’s IPO market began its dramatic decline in late2007, about a half year before the financial contagion spread into China. As a result of the financial crisisand global recession, decreased activity was witnessed in China’s capital markets, with both the numbers ofIPO and value of capital raised dropping significantly in 2008. The decline was the outcome of speculation 103
  7. 7. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011by retail investors and unreasonably inflated valuations. By the end of 2008, the Shanghai index had fallen65% with the IPO markets generated 97 deals worth just US$ 18 billion, a decline of 51% by deal numbersand 73% fund raised from the previous year. Even so, among all countries, China still ranked first in respectto number of IPOs, placed second only to the US for amount of capital raised and hosted four out of the top20 IPOs in 2008. China’s largest IPO in 2008 (and the second largest globally) was the US$5.7 billionoffering of China Railway Construction Corp. Ltd., followed in size by the US$1.56 billion offering ofChina South Locomotive & Rolling Stock Corporation Ltd. The leading industries (by funds raised) wereindustrials (building, construction, transportation and infrastructure) which raised US$8.8 billion or 49% oftotal funds raised in Greater China; materials (metals, chemicals, mining) produced US$3.0 billion; andconsumer staples (agriculture, food, textiles) yielded US$ 2.3 billion. The top sectors by number of dealsin China were materials with 30 deals followed by industrials (26) and consumer staples (17). With stableeconomic fundamentals and huge accumulated reserves of US$1.9 trillion, the focus of the Government inChina, as the world’s third largest economy, was to nip the economic slowdown in the bud. Through its$586 billion fiscal stimulus package, Beijing’s goal, on the other, was to stem falling stock prices, facilitatebusiness access to bank loans, restore investor confidence and allow the economy to recover by the secondhalf of 2009. According to Hong Kong Exchanges and Clearing data, the IPO market was quiet especiallyfrom the second quarter onwards, when the trading environment deteriorated further. Despite suchconditions, some key deals were completed successfully. Greater China’s vibrant IPO markets also reachedrecord fund-raising levels, accounting for 46% of global funds raised in 2010. The exchanges raised US$130 billion in 440 deals, a huge 152% rise in total value from 2009. The US$ 22.1 billion IPO ofAgricultural Bank of China, the last of China’s big state-owned commercial banks to list, was the world’slargest IPO ever in 2010. Insert Fig. 3 here European countries European IPO markets in 2008 were subdued in the face of the deep recession and global economiccrisis. Tight credit markets and falling commodity prices also slashed corporate earnings and dragged downmost major European stock indices by more than 40%. During the year, 201 IPOs generated just US$ 7billion, a 67% decline by number of deals and 85% decline by funds raised from the previous year. Theaverage deal size fell to US$80.9 million, down 56% from 2007. The biggest European IPO was theUS$2.5 billion offering of Czech coal producer New World Resources which listed on the London, Pragueand Warsaw Stock Exchanges. Portugal’s renewable energy company EDP Renovaveis was the next largestIPO with US$2.4 billion offerings. During the first quarter of 2009, European IPO markets produced sevenIPOs worth $11.3 million altogether. Six of these offerings were from Poland. Germany, France, Spain andItaly together generated 14 IPOs, worth only US$1.4 billion, a steep 94% decline in number and 95% infunds raised from 2007. Bolstered by its continuing convergence with the European Union (EU) economyand a burgeoning domestic pension fund, Poland hosted numerous (73) IPOs. However, by the fourthquarter of 2008, the offerings momentum came to a halt, despite several large privatizations in the Polishpipeline. In the first half of 2008, the energy and power sector generated US$5 billion, or 37% of total capitalrose in the region, followed by materials (metals, mining and chemicals) which raised US$2.9 billion andtelecommunications produced US$2.5 billion. The leading sectors by IPO deal numbers were technology, 104
  8. 8. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011with 24 deals, or 14% of the total number of deals in the region, industrials with 24 deals and consumerproducts and services with 18 deals. In 2010, European IPOs began to revive, and achieved their highestvolume since 2007 (US$ 37 billion in 252 deals). In the first half of 2010, continued market dislocation andsovereign debt crisis resulted in numerous withdrawals, postponements and highly discounted pricing.However, during the second half, European investors regained their risk appetite, buoyed by improvingreturns, a supportive interest rate environment and higher fund inflows into equities. Even so, while 2010volumes represented a 395% rise from 2009, European IPO fund-raising remained far below the pre-crisislevels in 2007 (US$ 100.4 billion). Europe accounted for just 13% of global captal raised, far less than the10-year average of 25%. The energy and power sector raised the most capital (23%), followed by thematerials sector (which includes metals, mining and chemical companies). Insert Fig. 4 here India In India, the corporate investment has been a significant source of economic growth over the pastseveral years. During the past decade, there has been tremendous growth in overall investment levels, fromless than 25% of GDP in 2000 to over 35% by 2006. Foreign financing of Indian corporations has increasedincluding external commercial borrowings, foreign direct investment, credit from foreign banks, andforeign institutional investors that have participated in domestic equity markets. The global financial crisishas made considerable impact on several sources of corporate financing. As foreign investors have been hitby the crisis, they have pulled back from the Indian market and turned risk averse. While the second half of2009 has seen a rebound in foreign inflows and the capital flows continues till 2010. Insert Fig. 5 here The private-sector issuances have been outpacing issuances by the public sector for the past severalyears in the Indian primary market. A diverse array of companies from entertainment to banks, financialinstitutions, construction, and infrastructure companies were the most frequent issuers in recent years.While the number of IPOs declined from the peaks seen in the mid-90s when the markets first began to takeoff, IPOs in the past several years have been generating ever increasing amounts of capital. In 2008, theamount of capital raised averaged close to Rs. 500 crore per IPO, compared to a mean IPO size of less thanRs.10 crore in the mid-1990s. In 2006, India’s IPO market made the list as one of the 10 biggest IPOmarkets in the world. In 2008, the Reliance Power IPO became the biggest IPO in India’s history. Thealmost US$ 3 billion offering was oversubscribed by approximately 10 times. When the global crisis hitfrom mid-2008, the market fell dramatically. Between January 2008 and the Sensex low in March 2009, themarket declined 60% and P/E ratios dropped by more than 45% over the same time period. The fall wasalso exacerbated by domestic investors who took money out of the market as job losses mounted and theongoing market decline began to hurt household wealth levels. India’s 36 IPOs in 2008 generated less thanUS$ 5 billion, an over 60% drop in the number of deals and a 45% decline in funds raised compared with2007. The combination of government support and the market rebound has increased the pace of equityofferings since July 2008. In 2009, the IPO market began to pick up, boosted by offerings from the publicsector. However, uncertainty in the market lingered and there were again concerns of asset bubble could beforming with foreign inflows. The country saw a dramatic recovery in its IPO markets in 2010 (US$ 8billion in 63 IPOs. This revival has been a domestic consumption led-growth story driven by an influx ofcapital from Western economies and a booming local stock market. India saw a growth of 215% in the 105
  9. 9. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011number of IPOs compared to 2009. There was a string of follow-on offerings from many previouslystate-owned enterprises in the materials sector such as steel, oil and gas – all of which helped the IndianGovernment raise funds to build roads, ports and power plants. This materials sector activity stems fromIndia US$ 10 billion divestment programme that spawned the largest IPO in India ever, the listing of theworld’s largest coal producer, US$ 3.4 billion Coal India, a former state-owned enterprise. Middle East and Africa The ever-growing track record of positive return from IPOs, the stock market boom and seekingdiversification of portfolios by the high net worth retail investors led to stimulating new issuances in theMiddle East. The IPO markets, during the first three quarters of 2008, seemed relatively immune to globalfinancial contagion. The country emerged as one of the leading IPO markets, reinforced by a large backlogof IPO candidates, as well as soaring oil prices, unprecedented liquidity, profitable domestic markets,limited exposure to toxic assets and GDP growth of 6.5%. Middle East IPO markets (in particular, SaudiArabia), contributing around 14% of all global fund-raising, produced US$16 billion in 77 IPOs during2008 as compared to US$ 20 billion comprising 190 IPOs in 2001. Since the last quarter of 2008, however,Middle East IPO activity slumped significantly in response to the falling stock markets, weakenedeconomies, collapsed oil prices, tighter external financing and overheated property markets, whichconspired to affect IPO activity. In the first quarter of 2009, the Middle East hosted just two IPOs worthUS$83.6 million, both from Saudi Arabia. The average Middle East IPO deal size in 2008 was about thesame as the previous year, about US$259 million. The prominent sectors for fund-raising were materials(metals, mining and chemicals), accumulating US$3.9 billion, or 30% of total capital raised in the region;financial services, worth US$3.3 billion and telecommunications, valued at US$2.5 billion. By number ofdeals, the top sectors were financial services, with 18 IPOs, or 35% of the total number of deals in theregion, industrials with 12 deals and real estate with 5 offerings. The growth was fuelled by record levels of foreign direct investment and softening of regulations toopen up the Middle East markets to international investors. According to most of the analysts, it would takesome time for foreign investors to return to the region because of their domestic losses and continuedvolatility in emerging markets. In 2010, the Middle East IPO markets saw a flat trend with 35 IPOs worth atotal of US$ 3.3 billion, a 59% increase from 2009 by capital raised. Africa also saw a jump of over 406%intotal proceeds, with 13 IPOs worth US$ 1.6 billion. Insert Fig. 6 here3. Material and Methods The study is conducted based on data collected from the World Federation of Stock Exchanges(WFSE), Global New Issues database published by Securities Data Company (SDC), National StockExchange database (India) and WDI database published by World Bank. For each IPO, the database givesdetailed information on the issuer, the issue date, total proceeds, the number and type of shares offered andthe offer price. Moreover, information regarding the nature of the issue, either domestic or contains aninternational tranche, and whether or not a tranche is offered to public or private investors are alsoconsidered for the study. The transactions only which satisfy the benchmark set for the study, between April2003 and March 2010, are then considered. In respect to analysis of regressions, the dependent variable is considered as a measure of IPO activity.For each country and in each year, the number of IPOs as well as the total proceeds raised through such 106
  10. 10. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011process is computed. To calculate the IPO numbers and proceeds, the domestic IPOs are differentiated fromthe global IPOs in the country of domicile are considered. Listed domestic companies include domesticallyincorporated companies listed on the country’s stock exchanges at the end of the year and do not includeinvestment companies, mutual funds, REITs or other collective investment vehicles. GDP is reported incurrent US dollars converted from domestic currencies using the year-end official exchange rate for thatcountry. An important set of data in the study are country-specific institutional variables related to the qualityof investor, legal protections and securities laws related to disclosure requirements and enforcementstandards. From LLSV (1998), countries governed by common law have better organized institutions and assuch, we have used the common law as a dummy variable. A popular index of legal protections for minorityinvestors is the anti-director rights index of LLSV. DLLS (2008) has introduced an index of anti-selfdealing to address the ways in which the law deals with corporate self-dealing in a more theoretical way.According to LLS (2006), securities laws that authorize prospectus disclosure and liability benefit stockmarket development, including the breadth, size, and liquidity of the market. These measures are especiallyuseful for our study as they relate closely to the security issuance process through IPOs. They have alsosuggested disclosure requirements index with components related to requirements for prospectuses, and forproviding information on compensation of directors and key officers, the issuer’s ownership structure,related-party transactions with directors, officers or large block holders, and the presence of contractsoutside the ordinary course of business. The liability standard index comprises measures of four liabilitystandards in cases against issuers and directors, distributors, and accountants. The index of publicenforcement is based on five broad aspects of public enforcement: the basic characteristics of thesupervisory body for securities markets, the scope of its powers to regulate markets, its investigativepowers, its power to issue non criminal sanctions for violations of securities laws against issuersdistributors, and accountants, and whether, to whom, and when criminal sanctions for violations ofsecurities laws apply. Finally, LLSV (1998) has built an all-encompassing investor protection index whichcomprises the first principal component of the burden of proof, disclosure, and the anti-director rights index.We have also included a measure of the rule of law from the World Bank’s World Governance Indicatorsdatabase and political risk from the International Country Risk Guide (ICRG) database built by The PRSGroup Inc. In contrast to the LLSV and DLLS, these variables are measured every year. A key mechanism through which poor institutions limit IPO activity is that they require moreco-investment by insiders at the IPO. Consequently, fewer IPOs are expected in countries where ownershipis optimally more concentrated. We have used a measure of ownership concentration from LLSV tocompute the average percentage of shares owned by the top three shareholders of the ten largest,non-financial, private domestic firms in a country. In our regressions, to measure the level of economicdevelopment in the country, we have used the log of GDP per capita (Log GDP / capita). This variable isobtained from the WDI Database. For measuring financial market development, we have applied theupdated index of the Financial Development and Structure database, originally used in Beck and Levine(2000). Data are also collected to measure market turnover ratio and market capitalization as a percentageof GDP. To accomplish control over the local market conditions as a factor in the going-public decision, wehave computed a country level measure of Tobin’s q in each year. The country-level measure of q is the 107
  11. 11. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011weighted average of the median industry qs at market value. This is constructed analogously to the localgrowth opportunities based on P/E ratios as used by Bekaert, Harvey, Lundblad, and Siegel (2007). Tocapture global growth opportunities, we have also formed a global measure of q. For each year, the medianq and the relative market value for each global industry are computed. Global q, thus represents theweighted average of global median of industry qs at market value. This measure is similar to the globalgrowth opportunities (GGO) measure as enunciated by Bekaert et al. Finally, to put in order the unobservable global macroeconomic and capital market factors thatinfluence IPO activity around the world, a world IPO factor is constructed. The domestic IPOs (Worlddomestic IPO rate) and global IPOs (World global IPO rate) are measured in terms of IPO numbers perlisted firms and in terms of IPO proceeds per GDP. To compute the world IPO rate for a given country, theIPO activity and the scale factor of that country are, however, excluded.3.1 The IPO Sample: 2004 to 2010 The initial sample is comprised of 15017 observations, of which transactions with a single domestictranche that SDC qualifies as private placement (32 observations), 138 observations with a gap of 30 daysor more between issue dates and 27 transactions that do not contain any information on proceeds raised arenot considered. The data of some IPOs (859 observations), which are recorded over multiple lines in SDC,even if there is only one tranche in the offering, are consolidated and excluded. Some foreign, includingglobal offers (2967 observations), recorded over multiple lines in SDC are consolidated into one line andkept out of the study. We have also barred 41 transactions that do not have SIC codes, leaving us with10953 observations, each of which represents a unique IPO. To construct our final sample, we have left out an additional 803 IPOs, dropped 452 IPOs by realestate investment trusts (REITs) and investment funds, 44 IPOs where the country of origin has no data(Angola, Barbados, Cambodia, Dominican Republic, Faroe Islands, Georgia, Ghana, Iceland, Kazakhstan,Lebanon, Macau, Malta, Netherlands Antilles, Slovenia, Ukraine, and Uruguay) and 28 IPOs from 16countries without any domestic IPOs (only global IPOs) during the 7-year sample period. The final samplethus contains 9626 IPOs of which 7028 are domestic and 2598 are foreign (international offerings with nodomestic tranche) and global offers (both domestic and foreign tranches included). In Table: 1, while thefirst part shows IPOs based on numbers the second deals with the total IPO proceeds. Domestic IPOproceeds do not include proceeds raised in the domestic tranche of global IPOs. For global IPOs, however,the panel considers the total proceeds raised through global IPOs (proceeds raised in the domestic andinternational tranches) and global proceeds raised in global IPOs (proceeds raised in the internationaltranches only). The IPO proceeds are computed in terms of US dollars (billions) in 2010. Insert Table-1 here3.2 IPO Activity in Selected Countries around the World: 2004 to 2010 The IPO data is obtained from SDC and includes 9626 IPOs during 2004 to 2010. While Part Idemonstrates the top five countries based on total IPO counts, the top five countries based on total IPOproceeds are shown in Part II. In this context, domestic IPO proceeds do not include proceeds raisedthrough domestic tranche of global IPOs. For global IPOs the panel reports total proceeds raised in globalIPOs (proceeds raised in the domestic and international tranches) and global proceeds raised in global IPOs(proceeds raised in the international tranches only). Proceeds are in constant 2010 U.S. dollars (billions). Insert Table-2 here 108
  12. 12. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 20114. Results 4.1 Descriptive Statistics The following table demonstrates the average value of each variable of the selected countries. Thesample is restricted to five countries based on availability of data for GDP and for country q data arerestricted to for at least one year during the sample period from 2004-2010. Each variable is then averagedacross years within a given country and across the countries. Insert Table-3 here 4.2 Regression Statistics The annual measure of global IPO activity of each country is selected as dependent variable here. TheIPO data is composed from SDC and includes 2598 global IPOs that have data available for GDP andcountry q for at least one year during the sample period from 2004 to 2010. For each country, global IPOnumbers and proceeds are summed annually. Part-I shows the regression of the data where the dependentvariable is the annual global IPO number of each selected country scaled by the total number of IPOsduring that year. On the other, Part-II shows the regression analysis, where the global IPO proceeds scaledby the total number of IPO proceeds during that year is referred to as the dependent variable. The globalIPO proceeds, here also, do not include proceeds from the domestic tranche of the IPO. Both measures ofglobal IPO activity are subsequently multiplied by 100. The dependent variable is not taken into account, ifthere is no IPO in a country during any given year. The world IPO rates are computed based on numbers(proceeds). The domestic IPO rate and world domestic IPO rate include total domestic proceeds. Allvariables are lagged by one year except the institutions variable. The dependent variable is each country’s annual measure of global IPO activity. IPO data is from SDCand includes 2598 global that have data available for GDP and for country q for at least one year during thesample period from 2004 to 2010. For each country, global IPO numbers and proceeds are summedannually. Tables 4, 6, 8 & 10shows regressions where the dependent variable is each country’s annualglobal IPO count scaled by the total number of IPOs that year. Tables 5, 7, 9 & 11 shows regressions wherethe dependent variable is each country’s annual global IPO proceeds scaled by the total number of IPOproceeds that year. Global IPO proceeds do not include proceeds from the domestic tranche of the IPO.Both measures of global IPO activity are multiplied by 100. The dependent variable is set to missing ifthere are no IPOs in a given country in a given year. The world IPO rates are based on numbers (proceeds).The domestic IPO rate and world domestic IPO rate include total domestic proceeds. With the exception ofthe institutions variables, all variables are lagged by one year. Post 2008 is a dummy that equals one from2008 to 2010.5. Results and Discussion The results obtained through panel regressions are based on global IPO numbers and proceeds. Thenumbers of global IPOs include foreign IPOs and global IPOs with a domestic and international tranche.These numbers are deflated by the total number of IPOs, both domestic and global IPOs. The global IPOproceeds, on the other, are determined by deflating the total IPO proceeds, including domestic and global.This process has helped us to determine and evaluate how intensively the firms in a country pursue theglobal opportunities. 109
  13. 13. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011 We have also considered in the base specifications some additional factors to account for the changinglandscape of the global economic and capital market environment. Moreover, efforts are also made toidentify exclusively the factors influencing the unique country-level global IPO activity to control for thelevel of global IPO activity in that country. The world global IPO rate (in terms of number) is measured interms of global IPO numbers per listed firms and global IPO proceeds per GDP. The world domestic IPOrate is also included as is the actual domestic IPO activity rate in the country of interest. To avoid possiblyspurious findings, these variables are lagged by one year, as are all other control variables. To capture theinfluence of differences in local country-specific growth opportunities and global growth opportunities, wehave included country q and global q in our regressions. For correlating these variables, we have interpretedthe coefficient on the global q ratio as a measure of growth opportunities that is independent of a country’sinstitutions. In the regressions displayed in the first columns of Tables 4, 6, 8 & 10for global IPO numbers and ofPanel-II for global IPO proceeds, it is observed that the coefficient on the global IPO factor is reliablypositive and economically large. This is what we would expect to observe if there are importantmacroeconomic cyclical factors as well as common long-term secular forces of financial crisis of capitalmarkets that influence global IPO activity across all markets. In Tables 4, 6, 8 & 10, the coefficient of 4.231implies that a one standard deviation increase in global IPO activity worldwide is associated with a 3.87%increase in global IPO numbers in a country, which represents 10% of the standard deviation of global IPOactivity. The equivalent coefficient for global IPO proceeds in Tables 4, 6, 8 & 10 is also significant andeconomically large. We have also located reliable evidence that the level of domestic IPO activity isnegatively related to the fraction of IPO numbers and proceeds that are global. However, the economicimportance of this relationship is even larger. For counts in Tables 4, 6, 8 & 10, the coefficient on thedomestic IPO rate is -2.148 which implies that standard deviation increase in domestic IPO numbers perlisted companies is associated with a 11.4% decrease in the fraction of IPOs that are global, which is about31% of the standard deviation of global IPO activity. The economic importance of the negative influence ofdomestic IPO activity by proceeds is found much smaller. We also encounter that market turnover isnegatively related to the intensity of global IPO activity by numbers and proceeds – both of which arereliable indicators to establish that robust domestic IPO activity is associated with fewer and less globalIPO activity, not more. None of the other variables explanatory, though the positive coefficient on log (GDP/ capita) is marginally significant for global q in respect to global IPO proceeds. The overall explanatorypower of the base specification is reasonably good for the global IPO proceeds (adjusted R 2 of 11%), andeven better for global IPO counts (adjusted R2 of almost 15%). 5.1 The Importance of Global IPO Activity In the first regressions, we have added one national institutions proxy variable in each subsequentcolumn in both panels. This has done to determine whether legal protections for minority investors,securities laws, disclosure rules, and their enforcement in a country influence the intensity with which firmspursue global IPOs, even after controlling for the overall level of domestic and global IPO activity, growthopportunities, and market conditions. We have found a reliable and important negative relationship formany of these variables. For example, where countries with better anti-director rights are associated withmuch less global IPO activity, the negative coefficient on anti-director of (-) 6.27 in Tables 4, 6, 8 &10implies a 6.48% lower fraction of global IPO numbers, which accounts for about 16% of its standard 110
  14. 14. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011deviation. The relationship is negative but weaker in Tables 4, 6, 8 & 10 for global IPO proceeds. The studyhas also observed a similarly reliable negative relationship for the intensity of global IPO numbers usingthe common law dummy as well as the anti-self-dealing, disclosure, and investor protection indexes. Thereexists, it is found, a positive relationship between ownership and the extent of global IPO activity and hasbeen confirmed in the last column of Tables 4, 6, 8 & 10. The statistical and economic significance of the national institutions proxy variables are often weakerin regressions for the intensity of global IPO activity by proceeds in Tables 4, 6, 8 & 10 than in the countregressions in Tables 4, 6, 8 & 10, and the results are found mostly consistent in both the panels. Again,while the institution variables generally have significant positive coefficients for domestic IPO proceeds, asignificant negative or insignificant coefficient has also been found for the global IPO proceeds regressions.As in Tables 4, 6, 8 & 10 for the global IPO count, disclosure and investor protection, though havingreliably negative coefficients, are considered as the most reliable national institutions variables. Thecoefficient of -21.52 on disclosures implies a higher score of one standard deviation with a 6.14% declinein the fraction of IPO proceeds that are global offerings, which represents about 19% of its standarddeviation. The rule of law is negatively related to the global fraction of IPO proceeds where ownership ispositively related, as expected. The common law dummy, the anti-director rights index and theanti-self-dealing index have negative coefficients, though found significant only at the 10% level. It isidentified in the previous section that national institutions became less important determinants of domesticIPO activity in the second half of our sample, however, it is to be investigated whether the same resultholds good for global IPOs as well. 5. 2 Comparing Global IPO Activity between Pre-crisis and Post-crisis We have developed the same base design for our panel regressions as in the previous section, but haveintroduced a dummy variable for the post-crisis (post-2008) period and allowed this variable to interactwith the proxy variable for the quality of national institutions in each additional specification. In the firstspecification in Tables 4, 6, 8 & 10, the Post-2008 dummy variable is found insignificant, which impliesthat there is no important shift across sub-periods in the overall fraction of IPO numbers that are global. Ithas also observed the same result for the first specification in Tables 4, 6, 8 & 10 for the fraction of IPOproceeds that are global. However, when other national institution variables are introduced, we haveuncovered the expected negative relation that is established in Tables 4, 6, 8 & 10. It is opined that thehigher is the quality of a country’s institutions; the lower is the fraction of IPO numbers that are global. Theinteractions of the institutions variables with the Post-2008 dummy variable are significant and of thepredicted sign, but for only three variables: anti-director, anti-self dealing, and ownership. In other words,the importance of the quality of a country’s institutions is weakened for some institutions variables, butclearly not for the majority of them. When the effect of an institution is weakened, the modification isfound economically significant considering the statistically significant and negative coefficient on theanti-director index of 10.628. This coefficient implies an 11.66% lower fraction of global IPO numbersduring pre-2008, which accounts for 30% of its standard deviation. But the positive, significant coefficientof 6.188 on the interaction variable with the post-2008 dummy implies only a 4.87% lower fraction ofglobal IPO numbers, such reversal effects during the period of 2008 are similarly remarkable foranti-self-dealing index and, to a similar extent, for ownership variable. It is found by the results of IPO proceeds in Tables 4, 6, 8 & 10, the importance of common law 111
  15. 15. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011decreases during 2008 instead of anti-director index, which was expected. For countries, with common laworigins, our analysis indicates that there is a 16.31% lower fraction of total IPO proceeds raised globally.During the same period, the positive coefficient on the interaction of the common law dummy with thePost-2008 dummy results a fall in global proceeds to only a 6.2% lower fraction of total IPO proceeds. Global IPOs, as is said, are avenues for firms to exploit the best of the global investors in the form ofbetter institutions, both domestic and global, to have a successful or more profitable IPO. The advantage ofthe institutions of foreign countries, however, is inversely related to the quality of a firm’s domesticinstitutions, and as such, it is not surprising that domestic institutions play an opposite role for global anddomestic IPOs. It is also evidenced in respect to both domestic and global IPOs that domestic institutionsbecome less significant during post-crisis period than during the pre-crisis periods. This evidence issubstantially more prominent for domestic IPOs than global IPOs. A possible explanation for this finding isthat financial crisis has increasingly enabled firms whose value is most closely tied to the quality ofinstitutions to use global IPOs and to take advantage of the institutions from foreign countries.6. Conclusions This study aspires to make a sincere attempt on the global and domestic IPO activity and hasobserved a dramatic change in the IPO landscape around the globe. Global IPOs have proved themselves tobecome more important, whether one looks at numbers or at proceeds. In fact, global IPOs have played acritical role in increasing the importance of IPOs by domestic firms, as firms in countries with weakerinstitutions are less likely to go public with a domestic IPO rather in a global IPO. Thus, global IPOs enablefirms always make efforts to overcome poor institutions in their country of origin. Perhaps as a result, thelaws and institutions of such countries become significantly less important in affecting the rate and velocityof IPO activity. The global drivers used to make a significant contribution in encouraging domestic IPOactivity. As such, higher levels of global IPO activity outside a country are not strongly and positivelyrelated to the level of global IPO activity in that country. However, global IPO activity is also related todomestic market conditions. Firms are more likely to choose to go public at home when valuations arehigher in the home market. Finally, our focus is resolutely on cross-country variation in global IPO activity,but as a result we highlight the decreasing role of domestic IPOs in the post-crisis periods.ReferencesAllen F. and G. Faulhaber (1989). Signaling by Underpricing in the IPO Market, Journal of FinancialEconomics; 23: 303-23.Beck and Levine (2000). Levine-Loayza-Beck Data Set: Financial Intermediation and Growth, The WorldBank Group, 1-3.Bekaert, G., C. R. Harvey, C. Lundblad, and S. Siegel (2007). Growth Opportunities and Market Integration,Journal of Finance, 62, 1081-1137.Black, Bernard S., and Ronald J. Gilson (1998). Venture Capital and the Structure of Capital Markets:Banks versus Stock Markets, Journal of Financial Economics 47, 243-277.Bloomberg, Various IssuesDoidge, Craig, G. Andrew Karolyi, and René M. Stulz (2007). Why Do Countries Matter So Much ForCorporate Governance? Journal of Financial Economics 86, 1-39.Doidge, Craig, G. Andrew Karolyi, and René M. Stulz (2011). The U.S. Left Behind: The Rise of IPO 112
  16. 16. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011Activity Around the World Charles A. Dice Center for Research in Financial Economics, Dice Center WP2011-8, Fisher College of Business WP 2011-03-008Doidge, Craig, G. Andrew Karolyi, and René M. Stulz (2009). Has New York Become less Competitivethan London in Global Markets? Evaluating Foreign Listing Choices over Time, Journal of FinancialEconomics 91, 253-277.Henderson, Brian, Narasimhan Jegadeesh, and Michael S. Weisbach, (2006). World Markets for RaisingNew Capital, Journal of Financial Economics 82, 63-101.Helwege, Jean and Nellie Liang (2001). Initial Public Offering in Hot and Cold Market”, Working Paper,Federal Reserve Board of Finance and Economics, Discussion Series.Hoffmann-Burchardi, Ulrike (2001). Clustering of Initial Public Offering, Information Revelation andUnderpricing, European Economic Review. 45(2) 353-83.Ibbotson, Roger G. and Jeffrey F. Jaffe (1975). Hot Issue Markets, Journal of Finance, 30, 1027-1042.Ibbotson, Roger G., Jody L. Sindelar, and Jay R. Ritter (1988). Initial Public Offerings, Journal of AppliedCorporate Finance, 1, 37-45.Ibbotson, Roger G., Jody L. Sindelar, and Jay R. Ritter (1994). The Market’s Problems with the Pricing ofInitial Public Offerings, Journal of Applied Corporate Finance, 7(1), 66-74.International Monetary Fund (2008), Global Financial Stability Report, October, Washington D.C.International Country Risk Guide (ICRG) database, Various IssuesJain, Bharat A., Kini, Omesh (1994). The Post Issue Operating Performance of IPO Firms, Journal ofFinance; 49(5), 1699-1726.Lowry, Michelle and G. William Schwert (2002). IPO Market Cycles: Bubbles or Sequential Learning,Journal of Finance, 57, 1171-1200.National Stock Exchange database (India), Various IssuesPerron, P (1993). Erratum - The Great Crash, the Oil Price Shock and the Unit Root Hypothesis,Econometrica, 61(1), 248-49.Ritter, Jay R. (1984). The Hot Issue Market of 1980, Journal of Business, 57(2), 215-240.Ritter, Jay R (1991). The Long Run Performance of Initial Public Offerings, Journal of Finance, 46(1), 3-27.Shah, Ajay (1995). The Indian IPO Market: Empirical Facts and Technical Report, Centre for MonitoringIndian Economy, MimeoShleifer, Andrei, and Daniel Wolfenzon (2002). Investor Protection and Equity Markets, Journal ofFinancial Economics 66, 3-27.Stulz, RenéM. (2009). Securities Laws, Disclosure, and National Capital Markets in the Age of FinancialGlobalization, Journal of Accounting Research 47, 349-390.WDI database published by World Bank. Various IssuesWorld Federation of Stock Exchanges (WFSE), Various Issues 113
  17. 17. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011 Table-1: The IPO sample: 2004 to 2010 Part-I IPO Numbers Year All IPOs Domestic IPOs Global IPOs 2004 1529 1297 232 2005 1473 1223 250 2006 1679 1314 365 2007 1850 1116 734 2008 884 587 297 2009 695 502 193 2010 1516 989 527 Total 9626 7028 2598 Part-II IPO Proceeds 2004 $71.6 2005 $133.8 $62.2 $66.8 2006 2007 $149.4 $82.6 $102.1 2008 2009 $223.7 $121.6 $188.7 2010 $48.2 Total $278.6 $89.9 $42.0 $111.5 $63.3 $128.0 $115.0 $73.0 $647.4 $355.0 $227.0 $1367.0 $719.6 Table-2: IPO activity for the top 5 countries around the world: 2004 to 2010 Part-I IPO Numbers Global IPOs Countries All IPOs Domestic IPOs US 1151 846 305 China 1238 935 303 Europe 2409 1976 433 India 366 348 18 Middle East and Africa 479 413 66 Total of top 5 5643 4518 1125 Rest of the World 3983 2510 1473 Total of all countries 9626 7028 2598 114
  18. 18. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011 Part-II IPO Proceeds US $285 $149 $136 China $351 $207 $144 Europe $361 $234 $127 India $36 $21 $15 Middle East and Africa $53 $37 $16 Total of top 5 $1086 $648 $438 Rest of the World $281 $71.6 $209.4 Total of all countries $1367 $719.6 $647.4 Table-3: Descriptive StatisticsVariables Mean Median S.D. 1st Quartile 3rd QuartileV1 47.92 49.28 26.63 25.00 69.61V2 45.70 44.59 20.76 32.82 57.46V3 3.68 3.73 0.23 3.71 3.75V4 0.15 0.15 0.003 0.15 0.15V5 0.24 0.24 0.004 0.24 0.24V6 0.74 0.73 0.03 0.73 0.74V7 0.11 0.11 0.01 0.12 0.12V8 2.49 1.16 2.85 0.35 3.88V9 0.20 0.15 0.18 0.07 0.26V10 0.30 0.00 0.46 0.00 1.00V11 3.44 3.50 1.12 3.00 4.00V12 0.48 0.44 0.24 0.29 0.64V13 0.62 0.58 0.21 0.50 0.75V14 0.48 0.44 0.25 0.22 0.66V15 0.51 0.55 0.22 0.33 0.67V16 0.48 0.46 0.23 0.35 0.61V17 73.49 75.68 11.62 66.07 83.52V18 0.76 0.86 0.92 -0.01 1.64V19 0.46 0.51 0.13 0.39 0.56V20 1.27 1.29 0.19 1.18 1.36V21 1.25 1.26 0.00 1.26 1.26V22 0.59 0.43 0.52 0.22 0.82V23 0.58 0.48 0.49 0.23 0.72V24 8.88 9.28 1.38 7.97 10.13 115
  19. 19. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011 Table-4: Global IPO numbers scaled by total number of IPOs C Anti-director Anti-self Disclosure Burden of Common dealing proof lawConstant -5.65 4.31 13.93 6.34 11.55 -0.07 (-0.47) (0.30) (2.04) (0.06) (0.89) (-0.001)Institutions variable - -6.27** 4.78*** -16.05** -21.52*** -8.28 - (-1.08) (-1.18) (-1.52) (-1.33) (-1.22)Domestic IPO rate -2.148 -1.10*** -2.34*** -2.97*** -1.64*** -2.80*** (-4.26) (-2.89 (-3.27) (-3.26) (-2.94) (-3.16)World domestic IPO rate 0.687 0.20** 1.32** 1.18** 0.56* 0.86* (0.98) (1.87) (2.32) (0.04) (0.79) (1.77)World global IPO rate 7.624 8.24*** 3.71*** 3.15*** 0.610** 6.75*** (1.89) (2.03) (2.40) (1.26) (1.03) (1.88)Country q 4.231 1.76 0.57 2.21 2.90 6.22 (0.76) (0.34) (0.34) (0.60) (0.64) (1.07)Global q 6.723 1.34 7.494 4.54 3.04 4.33 (0.34) (0.57) (0.37) (0.27) (0.31) (0.07)Market cap / GDP -3.684 0.16 0.31 -0.32 2.86 -0.68 (-0.94) (0.01) (0.17) (-0.01) (1.01) (-0.27)Market turnover -4.874 -3.37*** -3.11** -3.59** -3.35*** -3.98*** (-1.63) (-1.04) (-1.39) (-1.05) (-1.87) (-2.07)Log (GDP / capita) 1.986 1.34 2.28 2.92 0.99 3.43** (1.08) (0.25) (0.66) (1.03) (0.65) (1.07)Number of observations 200 200 200 200 200Adjusted R2 0.2127 0.3258 0.2036 0.2697 0.2438 Table-5: Global IPO proceeds scaled by total IPOs proceeds Common Anti-director Anti-self Disclosure Burden of law dealing proofConstant -13.59 -8.67 -3.76 -8.06 4.99 -9.62 (-0.61) (-0.37) (-0.19) (-0.68) (0.19) (-0.79)Institutions variable - -6.33* -2.16* -7.97* -22.88*** -6.31 - (-1.37) (-0.92) (-1.15) (-3.99) (-1.10)Domestic IPO rate -6.87*** -7.46*** -6.76*** -9.64*** -10.24*** -8.37** (-2.82) (-2.85) (-2.14) (-1.84) (-4.24) (-4.53) 116
  20. 20. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011World domestic IPO rate 4.11 6.42 7.34 8.06 7.84 8.97 (0.05) (0.35) (0.81) (0.27) (0.41) (0.62)World global IPO rate 37.85*** 34.76** 36.33** 34.73** 20.87* 31.97* (1.81) (1.19) (1.32) (2.36) (1.71) (1.99)Country q -2.17 -2.52 -4.77 -0.67 -5.257 -2.866 (-0.72) (-0.60) (-1.06) (-0.18) (-0.94) (-0.48)Global q 20.06* 23.66* 25.43** 31.78** 25.34* 43.550* (1.06) (1.00) (1.15) (1.05) (2.00) (1.99)Market cap / GDP 0.22 3.67 1.35 2.13 8.95** 3.38 (0.002) (1.04) (0.52) (0.27) (2.24) (0.83)Market turnover -5.73*** -7.28*** -6.24** -7.20** -8.82*** -9.60*** (-4.19) (-3.11) (-2.37) (-4.85) (-5.36) (-6.30)Log (GDP / capita) 1.81* 0.85 0.58 1.71 1.13 2.34 (1.10) (0.49) (0.86) (0.85) (0.69) (1.38)Number of observations 200 200 200 200 200 200Adjusted R2 0.1128 0.1389 0.1298 0.1276 0.1506 0.1211The t-statistics (in parentheses) are adjusted for clustering on countries – they are computed assumingobservations are independent across countries, but not within countries. *t-statistic is significant at 10%level of significance, ** t-statistic is significant at 5% level of significance and *** t-statistic is significantat 1% level of significance. Table-6: Global IPO numbers scaled by total number of IPOs Public Investor Political Rule of Ownership enforce protection risk lawConstant 1.628 11.187 -6.444 -33.104 -85.898** (0.04) (0.30) (-0.20) (-0.91) (-2.43)Institutions variable -12.291 -24.561** 0.163 -6.962 97.302*** (-0.73) (-2.44) (0.45) (-1.67) (6.14)Domestic IPO rate -3.888*** -3.751*** -3.362*** -3.199*** -3.429* (-6.43) (-6.56) (-6.33) (-5.57) (-6.12)World domestic IPO rate 1.001* 1.061* 1.159** 1.284** 1.334** (1.72) (1.85) (2.06) (2.27) (2.36)World global IPO rate 12.064*** 11.675*** 14.209*** 12.351*** 11.270*** (3.02) (2.86) (3.53) (3.03) (2.89)Country q 8.875 8.566 6.551 8.102 9.748 (1.28) (1.28) (1.06) (1.35) (1.54) 117
  21. 21. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011Global q 6.975 5.207 9.250 5.372 0.708 (0.27) (0.21) (0.40) (0.23) (0.03)Market cap / GDP -1.660 0.869 -5.200 -5.278 -2.182 (-0.39) (0.22) (-1.22) (-1.34) (-0.65)Market turnover -7.380*** -7.347*** -6.007** -6.910** -0.297 (-3.12) (-3.14) (-2.20) (-2.61) (-0.15)Log (GDP / capita) 3.540* 3.201* 2.303 7.761** 7.670*** (1.79) (1.76) (0.65) (2.54) (5.11)Number of observations 200 200 200 200 200Adjusted R2 0.2593 0.2729 0.2353 0.2444 0.3369 Table-7: Global IPO proceeds scaled by total IPOs proceeds Public Investor Political Rule of Ownership enforce protection risk lawConstant -29.327 -17.083 -22.337 -67.968* -102.1*** (-0.89) (-0.56) (-0.78) (-2.00) (-3.08)Institutions variable -2.972 -18.615** -0.264 -8.643** 78.190*** (-0.20) (-2.06) (-0.74) (-2.45) (5.26)Domestic IPO rate -18.71*** -17.52*** -16.59*** -15.01*** -17.27*** (-4.20) (-4.37) (-4.24) (-3.84) (-4.32)World domestic IPO rate 12.431 10.360 14.306 11.988 11.894 (0.65) (0.55) (0.77) (0.67) (0.65)World global IPO rate 46.194** 43.244* 51.947** 37.874* 32.786 (2.07) (1.93) (2.42) (1.73) (1.49)Country q -2.595 -2.780 -3.173 -2.002 -1.034 (-0.42) (-0.46) (-0.57) (-0.36) (-0.20)Global q 43.682* 44.084* 42.012* 44.538** 47.743** (1.96) (1.98) (2.01) (2.14) (2.02)Market cap / GDP 2.272 5.003 1.276 0.740 3.114 (0.54) (1.21) (0.34) (0.20) (1.07)Market turnover -9.964*** -10.05*** -10.11*** -10.99*** -4.312** (-5.99) (-6.32) (-6.44) (-6.38) (-2.43)Log (GDP / capita) 2.389 1.741 4.005 7.550*** 5.238*** (1.37) (1.02) (1.32) (2.89) (3.85)Number of observations 200 200 200 200 200 2Adjusted R 0.1234 0.1371 0.1232 0.1402 0.1958The t-statistics (in parentheses) are adjusted for clustering on countries – they are computed assuming 118
  22. 22. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011observations are independent across countries, but not within countries. *t-statistic is significant at 10%level of significance, ** t-statistic is significant at 5% level of significance and *** t-statistic is significantat 1% level of significance. Table-8: Global IPO numbers scaled by total number IPOs Common Anti-director Anti-self Disclosure Burden of law dealing proofConstant -3.395 21.830 53.654 27.043 16.258 23.547 (-0.10) (0.64) (1.59) (0.78) (0.54) (0.82)Post 2008 - -7.851** -27.435*** 13.126** -4.234** -12.314** - (-2.49) (-3.05) (-2.34) (-1.84) (-2.13) *** *** *** ***Institutions variable - -20.947 -10.628 -35.028 -19.547 -32.658*** - (-2.82) (-3.37) (-2.98) (-2.01) (-1.84)Institutions*Post 2008 -2.224 9.011 6.188** 16.149* 8.564 12.569* (-0.68) (1.55) (2.58) (1.77) (1.14) (1.24)Domestic IPO rate -3.326*** -3.066*** -3.366*** -2.960*** -2.952*** -2.058*** (-5.92) (-5.91) (-7.51) (-5.26) (-4.57) (-4.35)World domestic IPO 0.769 0.599 0.656 0.617 0.847 0.554rate (1.27) (1.03) (1.12) (1.04) (0.875) (0.93)World global IPO rate 13.751 13.555*** 14.400*** 13.782*** 11.247*** 10.548*** (3.44) (3.40) (3.61) (3.46) (2.54) (2.64)Country q 6.962 6.421 2.555 4.960 5.986 3.621 (1.17) (1.02) (0.44) (0.76) (0.99) (0.67)Global q 0.227 2.853 5.918 3.698 2.367 2.687 (0.32) (0.12) (0.26) (0.16) (0.07) (0.14)Market cap / GDP -5.327 0.718 0.973 0.266 0.652 0.326 (-1.26) (0.17) (0.24) (0.06) (0.14) (0.09)Market turnover -6.620 -7.534*** -6.434** -6.437** -6.884*** -4.875** (-2.49) (-2.78) (-2.41) (-2.42) (-2.41) (-1.88)Log (GDP / capita) 3.937 2.343 2.330 2,964 2.008 2.669 (1.97) (1.25) (1.30) (1.41) (0.87) (1.08)Number of observations 200 200 200 200 200 200Adjusted R2 0.2383 0.2701 0.2788 0.2584 .02601 0.2487 Table-9: Global IPO proceeds scaled by total IPOs proceeds Common Anti-director Anti-self Disclosure Burden of 119
  23. 23. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011 law dealing proofConstant -2.882 -31.24 -9.67 -15.36 -45.26* -98.32*** (-0.17) (-0.96) (-0.50) (-0.58) (-1.84) (-2.77)Post 2008 - -2.087 -15.355** -0.305 -7.652** 74.585*** - (-0.12) (-1.67) (-0.85) (-2.13) (4.98)Institutions variable - -11.57*** -14.237*** -14.35*** -12.34*** -15.86*** - (-3.89) (-3.66) (-3.99) (-3.02) (-3.65)Institutions*Post 2008 -1.995 11.258 9.689 11.658 9.657 10.352 (-0.54) (0.52) (0.47) (0.68) (0.63) (0.70)Domestic IPO rate -2.874*** 41.697** 37.589* 46.357** 32.547* 30.643 (-4.34) (1.98) (0.88) (2.04) (1.24) (1.18)World domestic IPO rate 0.557 -3.024 -2.054 -4.001 -1.884 -1.147 (1.03) (-0.48) (-0.56) (-0.66) (-0.29) (-0.26)World global IPO rate 10.258 38.635* 40.214* 39.231* 41.366** 44.698** (2.65) (1.25) (1.34) (1.74) (1.83) (1.84)Country q -6.107 -7.227 -6.247 2.441 1.114 3.294 (1.14) (1.68) (1.54) (0.56) (0.58) (1.86)Global q 1.684 -14.358*** -5.24*** -8.269*** -2.356*** -4.323** (-0.89) (-4.24) (-2.17) (-4.221) (-1.87) (-3.54)Market cap / GDP 4.772 2.658 4.854 1.200 0.652 4.021 (0.98) (0.68) (0.87) (0.30) (0.18) (1.21)Market turnover 0.234 -10.005*** -9.36*** -9.621*** -9.682*** -3.654** (0.27) (-3.88) (-4.96) (-5.32) (-5.47) (-2.04)Log (GDP / capita) 3.004 2.304 1.587 5.005 6.895*** 4.265*** (1.46) (1.21) (1.26) (1.04) (2.47) (3.12)Number of observations 200 200 200 200 200 200Adjusted R2 0.2187 0.1189 0.1293 0.1249 0.1357 0.1827The t-statistics (in parentheses) are adjusted for clustering on countries – they are computed assumingobservations are independent across countries, but not within countries. *t-statistic is significant at 10%level of significance, ** t-statistic is significant at 5% level of significance and *** t-statistic is significantat 1% level of significance. Table- 10: Global IPO numbers scaled by total number of IPOs Public Investor Political Rule of Ownership enforce protection risk lawConstant 0.63 9.19 -6.44 27.11 -66.55** (0.04) (0.30) (-0.20) (-0.91) (-2.43)Post 2008 -12.291 -24.561** 0.163 -6.962 97.302*** (-0.73) (-2.44) (0.45) (-1.67) (6.14) 120
  24. 24. Research Journal of Finance and Accounting www.iiste.orgISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 2, No 4, 2011Institutions variable -3.888*** -3.751*** -3.362*** -3.199*** -3.429* (-6.43) (-6.56) (-6.33) (-5.57) (-6.12)Institutions*Post 2008 1.001* 1.061* 1.159** 1.284** 1.334** (1.72) (1.85) (2.06) (2.27) (2.36)Domestic IPO rate 12.064*** 11.675*** 14.209*** 12.351*** 11.270*** (3.02) (2.86) (3.53) (3.03) (2.89)World domestic IPO rate 8.875 8.566 6.551 8.102 9.748 (1.28) (1.28) (1.06) (1.35) (1.54)World global IPO rate 6.975 5.207 9.250 5.372 0.708 (0.27) (0.21) (0.40) (0.23) (0.03)Country q -1.660 0.869 -5.200 -5.278 -2.182 (-0.39) (0.22) (-1.22) (-1.34) (-0.65)Global q -7.380*** -7.347*** -6.007** -6.910** -0.297 (-3.12) (-3.14) (-2.20) (-2.61) (-0.15)Market cap / GDP 3.540* 3.201* 2.303 7.761** 7.670*** (1.79) (1.76) (0.65) (2.54) (5.11)Market turnover -7.534*** -6.434** -6.437** -6.884*** -4.875** (-2.78) (-2.41) (-2.42) (-2.41) (-1.88)Log (GDP / capita) 2.343 2.330 2,964 2.008 2.669 (1.25) (1.30) (1.41) (0.87) (1.08)Number of observations 200 200 200 200 200Adjusted R2 0.2593 0.2729 0.2353 0.2444 0.3369 Table-11: Global IPO proceeds scaled by total IPOs proceeds Public Investor Political Rule of Ownership enforce protection risk lawConstant -27.88 -12.96 -16.84 -44.57* -94.57*** (-0.74) (-0.73) (-0.86) (-2.31) (-2.83)Post 2008 -10.441 -20.354** 0.185 -5.324 84.117*** (-0.84) (-3.01) (0.38) (-2.00) (5.88)Institutions variable -2.972 -18.615** -0.264 -8.643** 78.190*** (-0.20) (-2.06) (-0.74) (-2.45) (5.26)Institutions*Post 2008 1.744* 1.547* 1.421** 1.567** 1.402** (2.03) (1.48) (1.84) (1.97) (2.71)Domestic IPO rate -18.71*** -17.52*** -16.59*** -15.01*** -17.27*** (-4.20) (-4.37) (-4.24) (-3.84) (-4.32)World domestic IPO rate 11.245 12.547 13.257 9.568 16.004 121