Do sponsors and democratic government influence the flipping activity of Pakistan IPO? Evidence from developing market

Abstract

Purpose This study aims to examine the impact of sponsors and democratic government on the flipping activity of initial public offerings (IPOs). Design/methodology/approach Based on the sample of 95 IPOs listed on the Pakistan Stock Exchange between January 2000 and December 2019, this study used multiple cross-sectional regression to examine the relationship between sponsors and democratic government on flipping activity. Findings The findings indicate a significant negative association between sponsors and the flipping activity of IPOs. Sponsor(s) signal quality by trying to share accurate information about company values. As a result, the confidence of rational investors in the company’s future prospectus increases and they hold their shares for future gains, which reduces the flipping activity. Also, democratic government, along with sponsors' participation, provides investors with liquidity immediately after listing. Practical limitations/implications The findings of this study have implications for investors as they may assist them make informed decisions about whether or not to invest in an IPO with high sponsor(s) ownership. In addition, issuers should consider the disclosure of sponsor information(s) as such information may directly affect the first day’s trading volumes. Originality/value To the best of the authors’ knowledge, this is the first research study that explores the correlation between sponsors and democratic government and flipping activity of IPO. This study is important for investors and issuers.