Abstract:
The decision on going public of private companies has taken more attention among
researchers during the last thirty years. Studies reveal that the number of going public
decision varied along with changes in nation’s economic conditions. Theoretical and
empirical literature revealed diverse views on the relationship between Initial Public
Offering (IPO) activity and macroeconomic determinant. However, the empirical
study on co-movement between IPO activity and macroeconomic condition is rare
in literature. Therefore, this study intended to investigate the selected
macroeconomic factors on going public decisions in the Sri Lankan context. This
study collected firm-specific IPO activity data from the Data Library of Colombo
Stock Exchange (CSE) and macroeconomics data from annual reports of the Central
Bank of Sri Lanka during the period from 1990 to 2018 to examine the long and
short-run dynamic impact of macroeconomic conditions on IPO using time-series
econometric techniques. The unit-root tests for each of the variables were done to
make sure their stationery, which revealed that most of the variables are stationary
at level and few become stationary at 1st difference. This study used the AutoRegressive Distributed Lag (ARDL) and Bounds testing procedure and ARDL Error
Correction Regression since time series here integrated mix of both order zero and
one. The lag selection of the variables was automatically selected using the Akaike
information criterion (AIC). Analysis of the time series variable revealed that there
are long-term equilibrium relationships that exist between IPO activity and selected
macroeconomic variables such as Economic growth, interest rate, foreign direct
investment, trade openness, and money supply. The more robust result can be
obtained by engaging a large number of observations for long period and/or
employing monthly / quarterly data rather than annual data.
