Activity, Pricing and Performance of Initial Public Offerings in Thailand

Abstract

The decision to ‘go public’ is an important process in the company life cycle. By making an initial public offering (IPO) of company shares, firms can raise external equity finance, thereby allowing inter alia the cashing-out of entrepreneurs and private equity interests, the funding of growth and expansion opportunities, enhancing the market for corporate control, and facilitating capital restructuring. Consequently, the efficiency of the IPO process and the performance of companies that have gone public has been a longstanding focus in academic research and a key concern for practitioners. This thesis presents the results of three complementary empirical analyses of IPOs and the IPO process in Thailand. Emerging markets in particular, like Thailand, are becoming ever more important to the international financial community as individual and institutional investors look to diversify their risk and seek new markets in which to invest their funds. Moreover, IPOs are particularly important in emerging markets themselves, including their key role in financial and economic development and the promotion of economic wellbeing. The first part of the study investigates the firm-specific determinants and outcomes of IPOs using data for 5,228 private and public firms in Thailand between 2001 and 2007. The IPO listing requirements of the SET are used to identify all private firms that technically satisfied SET listing requirements. This allows for a comparison of firms that choose an IPO and those that do not. Age, size, sales growth, leverage, profitability, fixed assets growth and interest rate from the bank borrowing of the private and public firms are key variables used in this study. Probit analysis of the determinants of IPOs reveals that firms that are young, large, highly leveraged and with lower interest rates from borrowing tend to list on the market. The results of OLS regression estimation for IPOs subsequent performance also strongly suggest that Thai IPO firms went public to lower borrowing rates, not to fund future investment in fixed assets and sales growth. Additionally, the evidence suggests that firm profitability does not decline following an IPO, in sharp contrast to previous studies in developed markets.