Abstract:
Listing companies on the stock exchange offer many benefits for the companies,
investors and the economy. However, few companies have gone public in Sri Lanka.
This study explores the reasons and factors affecting the go-public decision of
companies in Sri Lanka. Further, it investigates how IPO activities respond to
macroeconomic dynamics in Sri Lanka. This study employs the sequential exploratory
design with multiple triangulation. Based on the benefit-cost trade-off theory of going
public decision, the phenomenological analysis is performed on the transcript
interview and IPO prospectus in the study's first phase. The interviews were conducted
with those directly involved in the listing process and shared their experiences. Based
on the first phase result, we designed a questionnaire that collects primary data from
finance professionals and accountants working in listed and qualified unlisted
companies. The characteristics of the respondents' company, their opinion about the
motives/benefits and costs/constraints of the going public decisions, and their
perception of stock market characteristics and behaviours towards going public
decisions were collected through the questionnaires. This study utilizes 283
questionnaire responses as the final sample in the second phase. The analysis reveals
that raising capital for long and short-term growth and building corporate image and
governance structure are the main reasons for going public. The factor analysis,
logistic regression and structured equation modelling found that 1) financing for
future growth and lowering the cost of capital, 2) corporate image and liquidity, and
3) loss of ownership are the significant factors affecting going public decisions in Sri
Lanka. Furthermore, firm size also has a significant impact on the decision. The
autoregressive distributed lag (ARDL) analysis of macroeconomic factors reveals that
return on investment significantly impacts IPO activity in the long run. While the
factors, trade openness & banking sector development, and return on investment
significantly impact IPO activities in the short run.
