An Empirical Study On Factors Affecting IPO Pricing And Long-Run Performance: The Stock Exchange Of Thailand

The issue of IPO Pricing and subsequent long-term performance were two of themost popular topics in the early research concerning initial public offering. These issueshave brought greatly inspiration and interest to the theoretical and practical world offinance; a growing number of scholars were being put into theoretical and empiricalstudies. Determining the offer price of the new shares is the most important andfundamental aspects of IPOs. Not only focus on how to set a reasonable price, but alsoresponding for interests of the various stakeholders. This has direct affect on long-termperformance of IPOs after listing and the efficiency of resource allocation in the stockmarket.The Stock Exchange of Thailand is an emerging stock market, which is stillimperfect and immature. The stock market of developed countries have higherregulatory normative and far more favorably than emerging stock market including ThaiStock market. Over the past few years, The stock exchange of Thailand has beenthrough a lot of changes for instance the stock market regulatory reformation, politicalunrest, social turmoil, natural disasters, investor behavior, and United States finacial andeconomic crisis. These internal and external factors have been affecting Thailand stockmarket, especially on IPO Pricing and long-term performance. This paper investigatesfactors that affecting IPO Pricing and long-term performance after listing. It aims toimprove IPO market efficiency in terms of pricing and provides information in makingany decisions regarding investment for investor who is interested in the stock exchangeof Thailand. It also aims to determine whether Thai IPO over or underpricing.The first part of this paper introduces the history of stock exchange of Thailandand explains Thai IPO underpricing phenomenon along with suggestions. Thai IPOunderpricing phenomenon is approximately30%of the offering price. This papercontinues to apply the CAPM model in Thailand market pricing factors, analysis hasfound CAPM model Thailand markets are not fully applicable because Thailand capitalmarkets are emerging stock markets are not mature, Market does not improve the lackof maturity and stability of the system of environmental laws and regulations andstrictly regulate the market. Secondly, this paper uses regression model to analyze factors that affecting IPOpricing. The result indicates that Earnings per share (EPS) and Return on Equity (ROE)are the two factors that have an impact on Thai IPO pricing. The reason “EPS” is asignificant factor in Thailand markets is because it reflects profitability of a company. Ifa company has high earnings per share, it can lead to even higher IPO price. For “ROE”Due to the political instability that has a major affect on Thai economy, any companythat going to issue IPO has to be more cautious. Moreover, the company has to generatehigh profit in order to gain credence from investors. Therefore, earnings per share andreturn on equity are an important factors that Issuers and underwriting firms cannotoverlook when determining IPO price.Lastly, evaluated data by using Microsoft Excel, and Eviews5.0throughcalculations and statistical tests during three years study period.Average Abnormal Return (AR), Average Cumulative Abnormal Returns (CAR),Buy-and-hold Returns (BHAR), Wealth Relatives (WR) and Fama-French Model werecalculated. This study found that Thai IPO had significant long-term performanceweakness. The IPO long-term performance was significantly weaker than the marketperformance. This indicates that Thai IPO was not suitable for long-term investmentdue to unreasonable allocation of resources.The main innovative features in this paper are as follows:Firstly, to my knowledge there are no studies availaible in China on factorsinfluencing Thai IPO pricing and long-term performance.This paper can illustrate moreunderstanding on Thailand macroeconomic, the stock market conditions, return oninvestment, Securities and Exchange Commission (SEC) regulations, investment risks,and beyond.Secondly, this study analyzed8fundamental factors that influencing IPO:1) StockMarket Index Open (INDEX);2) Price earning ratio (P/E);3) Earnings per share (EPS);4) Return on asset (ROA);5) Return on equity (ROE);6) Debt equity ratio (DE);7)Size;8) Current asset ratio (CA). The multiple linear regressions have been applied toobtain results.Thirdly，previous literature has been thoroughly reviewed and found no record ofany research using Fama-French3-factor model to describe Thai IPO long-termperformance. This study presents greater analysis tools than previous studies, which can give more accurate result and better explaination. This study mainly usesAverage Abnormal Return(AR), Average Cumulative Abnormal Returns (CAR),Buy-and-hold Returns (BHAR), Wealth Relatives (WR) and Fama-French Model tostudy Thai IPO long-term performance and provides some suggestions accordingly.