Abstract:
Initial Public Offering (IPO) underpricing is the most crucial area which embedded
with IPO pricing. IPO underpricing can define as increase the first day closing price
of IPO share at market than its offer price. Merely IPO underpricing is one of the
favorable occurrences to the company as well as to the investors who have invested
on those shares. Therefore, this study is to analyze whether there is an IPO
underpricing exist in Colombo Stock Exchange and identify the determinants of IPO
underpricing. Other than that this research paper addresses the impact of civil war
towards the IPO underpricing. In specific, the study addresses the relationship
between the IPO underpricing and supposed determinants throughout a regression
analysis. By accepting the alternative hypothesis researcher posit that offer price and
issue size has negative significant influence on IPO underpricing. And debt to equity
(D/E) ratio, Sector P/E ratio, and cumulative average return of ASPI has significant
positive relationship with IPO underpricing. The variables, Market capitalization,
Earnings per share (EPS) ,Net profit ratio, Oversubscription rate are recognize as
insignificant determinants in analyzing IPO underpricing in Colombo Stock Exchange
since some absence of ordinary least square (OLS) assumptions and contrary to the
expectations of literature reviews in this area. Moreover this study observes that
average IPO underpricing is increase in post war period than the prior to war period
due to the economic and political stability after the war ends.
