Impact of Initial Public Offerings on Capital Market Development of Bangladesh

Abstract

This thesis conducts a comprehensive analysis of the impacts of Initial Public Offerings (IPOs) on the development of the capital market in Bangladesh, which is recognized as one of the fastest-growing economies in South Asia. In this context, the increasing capital needs of entrepreneurs are primarily met by state-owned and private commercial banks, as well as non banking financial institutions, due to the underdeveloped nature of the stock market. Bank financing is influenced by monetary policies, particularly the bank rates set annually by the central bank. While some studies highlight the necessity of strengthening the debt and equity securities market to support Bangladesh's rapid economic growth, there are ongoing debates about the extent to which the capital market contributes to the development process by providing alternative financing sources for entrepreneurs through public and private offerings. To bridge this understanding gap, I examine the impacts of Initial Public Offerings on the development of Bangladesh's capital market through a meticulous examination of primary and secondary data sources, including closed-end questionnaire, IPO Prospectus and regulatory documents from different stakeholders of the capital market i.e., Ministry of Finance, BSEC, BB, DSE, CSE, published articles, daily newspapers etc. and use annual data from 1994 to 2023. Employing multiple regression analysis, I find that IPO financing, unemployment rate, foreign portfolio trade, and DSE Broad Index significantly and positively influence the Market Capitalization to GDP ratio of the capital market of Bangladesh. Notably, foreign portfolio trade exerts the largest effect on the Market Capitalization to GDP ratio, followed by IPO financing, unemployment rate and DSE Broad Index. The findings underscore the need to encourage more quality IPO issuances by addressing the barriers that deter large companies, including multinational corporations and state-owned entities, from pursuing public financing. Additionally, increasing the size of issuances and ensuring the proper utilization of IPO proceeds are essential steps to further develop the capital market of Bangladesh.