New Issues Puzzle: Experience from Karachi Stock Exchange

This study investigates the difference between short and long run aftermarket performance of state owned and non- state owned initial public offerings issued at Karachi Stock Exchange, with the total sample of 72 IPOs out of which 61 are non-state enterprises and 11 state owned enterprises during the period of Mar 2000- June, 2015. Study finds that both groups of IPOs outperforms on first trading day, as average initial market adjusted returns of SOE and non-SOE IPOs are 27.65 percent and 22.53 percent respectively. But the mean difference of both IPOs is not statistical significant and in contrast of asymmetric information theory. In long-run after market performance buy and hold abnormal returns of SOE and non-SOE IPOs 80.457 percent and -91.866 percent respectively, which shows outperformance of SOE while underperformance of non-SOE in long run. Values of SOE and the mean difference values of both groups of IPOs are not statistically significant. By using cross sectional multiple variables with OLS estimation technique, this research also reveals the factors that can significantly influence the underpricing, aftermarket long-run performance of IPOs and comparison of association between underpricing and ownership structure of SOE and non-SOE IPOs. Regression results unveils that firm size, after market-risk level of IPO and subscription ratio are significant factors of underpricing while, first day return, market-volatility and retained ownership are significant factors of aftermarket over 5 years long run performance. Study examines that ownership concentration in both SOE and non-SOE IPOs is similar, and underpricing is positive and significantly related with ownership concentration while firm size and after market risk of issue and ROA also affects ownership concentration.