Thesis defence presentation and its.pptx

Initial public offerings and it's importance

1. Determinants of Investor's Subscription Level of Initial Public Offerings: Evidence from Egyptian Market Prepared by Kareem Yahia Mohamed Khalil Under Supervision of Dr.Hassan Mounir El- Sady Professor of Finance, Faculty of Commerce, Cairo University Dr.Mai Ahmed AbdEl Zaher Lecturer of business administration Faculty of Commerce, Cairo University

2. 1. Introduction 1.1.Definition: The Initial Public Offerings(IPOs ): The first time shares of a business are offered to the public. A general offer made widely available by offering the shares to unconnected third parties.

3. 1.2.The main purpose of IPOs The primary purpose of the IPO is to increase capital in a cost-effective way because it allows business expansion without increasing borrowings or draining the company’s cash reserves. Other reasons for undertaking an IPO would be to improve the company’s profits and increase the potential for mergers or acquisitions.

4. 1.3. G limpse of the Egyptian market IPOs in Egypt are part of the same process as listing, as an IPO is one of the main requirements for listing on the EGX.It is crucial important to analyze the determinants that affect oversubscription level of IPO Egyptian companies in a trial of determining precisely which of these determinants that are affected directly on oversubscription level.

5. Figure : Construction of IPO Industry in Egypt Source: EGX Website and Fronteranews.com

6. Then the following variables extracted Issue-specific characteristics Firm-specific characteristics Market-specific characteristics Offer Price Financial leverage Market Volatility Issue size Profitability(ROA) Market Hotness Oversubscription ratio Firm Age Firm Size

7. Research Statement The research gap is therefore illustrated by the requirement to determine whether the variables included in this study, such as offer price, firm size , firm age, financial leverage, issue size , ROA, market volatility , market hotness, and type of industry, are the factors influencing the IPO Oversubscription ratio for firms listed on the Egyptian Exchange.As a result, the research problem statement is:.

8. What factors affect the amount of investor subscription for initial public offerings in the Egyptian Market when companies go public. "

9. The Research Sample and Data Source All initial public offerings that were listed on the Egyptian Exchange between 2005 and 2022 comprise the population for the study. The data extracted from the following sources, the prospectuses of IPO, the annual financial statements published in website of Egyptian Stock Exchange and using the subscribed database of Decypha ( https://www.decypha.com/ ).

10. Research variables

11. D ependent Variables Oversubscription level of IPO: The over-subscription level of an IPO is a gauge of pre-offering investor interest. This ratio indicates how frequently the pool of investors overdemands an IPO. An over-subscription ratio of two times, for instance, means that two investors apply for every one share of an initial public offering (IPO).

12. Independent Variable` Measurement OP(Offer Price) Offer price of the issue IS(Issue Size) The number of shares issued × the issue price FA(Firm age, FL(Financial Leverage) Total debts ÷ Total assets ROA(Return on Assets) Net Profit ÷ Total assets FS(Firm size, MV(Market Volatility) Standard deviation of daily market returns over the period before the closing date of the offer 60 day. MH(Market Hotness) Dummy variables , value '1' if hot ; '0' if cold INDT(Industry Type) 5-industry classified dummies from '0' to '4' Independent Variable` Measurement OP(Offer Price) Offer price of the issue IS(Issue Size) The number of shares issued × the issue price FL(Financial Leverage) Total debts ÷ Total assets ROA(Return on Assets) Net Profit ÷ Total assets MV(Market Volatility) Standard deviation of daily market returns over the period before the closing date of the offer 60 day. MH(Market Hotness) Dummy variables , value '1' if hot ; '0' if cold INDT(Industry Type) 5-industry classified dummies from '0' to '4'

13. The Research Hypotheses H1: There is a possible relationship between offer price and IPO’s subscription level H2: There is a possible relationship between issue size and IPO’s subscription level H3: There is a possible relationship between firm age and IPO’s subscription level H4: There is a possible relationship between financial leverage and IPO’s subscription level H5: There is a possible relationship between profitability and IPO’s subscription level H6: There is a possible relationship between firm size and IPO’s subscription level H7: There is a possible relationship between the market volatility and IPO’s subscription level H8: There is a possible relationship between Market Hotness and IPO’s subscription level H9: There is a possible relationship between industry type and IPO’s subscription level

14. So the research Model will be: OSL i = α + α 1 OP i i + α 2 IS i + α 3 FA i + α 4 FL i + α 5 ROA i i + α 6 FS i + α 7 MV i + α 8 MH Dummy i + α 9 INDT Dummy i+εi ,

15. Multiple linear regression analysis                     Variable Coefficient Std. Error t-Statistic Prob.                       IPOS_SUBSCRIPTION_LEVEL(-1) -0.726392 0.190244 -3.818212 0.0009 OFFER_PRICE -0.688410 0.348706 -1.974185 0.0643 LNISS(ISSUE SIZE) 4.697976 1.498326 3.135483 0. 0023 FIRM_AGE 1.080546 0.356912 3.027486 0. 0038 FINANCIAL_LEVERAGE -27.33920 13.11983 -2.083807 0.0456 PROFITABILITY_ROA 102.4092 24.73141 -4.140856 0.0003 LNFS(FIRM SIZE) 2.527060 1.188364 2.126503 0.0432 MARKET_VOLATILITY -0.352613 0.113145 -3.116470 0. 0027 IPOMARKETHOTNESS -7.044649 4.348580 -1.619988 0.0961 SERVICE_SECTOR 6.224719 3.492171 1.782478 0.0853 MANUFACTURING_SECTOR -8.127642 4.047826 -2.007903 0.0551 C 17.14755 28.20931 0.607868 0.5485                     R-squared 0.478782     Mean dependent var 19.58063 Adjusted R-squared 0. 4 58267     S.D. dependent var 13.37169 S.E. of regression 11.51622     Akaike info criterion 7.977480 Sum squared resid 3448.209     Schwarz criterion 8.494613 Log likelihood -139.5721     Hannan-Quinn criter. 8.161472 F-statistic 2.171200     Durbin-Watson stat 1.580822 Prob(F-statistic) 0.050981     Wald F-statistic 27.46818 Prob(Wald F-statistic) 0.000000                          

16. Multiple linear regression analysis           Centered Variable VIF         IPOS_SUBSCRIPTION_LEVEL(-1)  6.360409 OFFER_PRICE  9.037472 LNISS(ISSUE SIZE)  3.139729 FIRM_AGE  9.624534 FINANCIAL_LEVERAGE  3.198170 PROFITABILITY_ROA  9.323545 LNFS(FIRM SIZE)  3.314690 MARKET_VOLATILITY  7.20344 IPOMARKETHOTNESS  4.241970 SERVICE_SECTOR  3.406352 MANUFACTURING_SECTOR  8.610633 C  NA        

17. The researcher conducted Ramsey Reset Test for model specification in order to figure out whether there are variables that should be included in the model though not taken or not . The model is well specified if the p-value is more than 0.05. Thus, it can be concluded from the above table that the model is well specified as the p-value is 0.09.                             Value df Probability   F-statistic  2.638865 (2, 24)  0.0921   Likelihood ratio  7.553385  2  0.0229                      

18. Hypotheses Testing The researcher draws the following conclusions because the "F test" value is significant at a level lower than(0.05): Testing the first hypothesis (H1) It can be concluded from the previous tables that the first hypothesis (H1), which states that there is a significant relationship between offer price and IPO’s subscription level, is rejected as there is insignificant relationship between IPO subscription level and the offer price. Testing the second hypothesis (H2) It can be concluded from the previous tables that the second hypothesis (H2), which states that there is a significant relationship between issue size and IPO’s subscription level, is accepted as there is significant relationship between IPO subscription level and the issue size.

19. Testing the third hypothesis (H3) It can be concluded from the previous tables that the third hypothesis (H3), which states that there is a significant relationship between firm age and IPO’s subscription level, is accepted as there is significant relationship between IPO subscription level and the firm age. Testing the fourth hypothesis (H4) It can be concluded from the previous tables that the fourth hypothesis (H4), which states that there is a significant relationship between financial leverage and IPO’s subscription level, is accepted as there is significant relationship between IPO subscription level and financial leverage.

20. Testing the fifth hypothesis (H5) It can be concluded from the previous tables that the fifth hypothesis (H5), which states that there is a significant relationship between profitability and IPO’s subscription level, is accepted as there is significant positive relationship between IPO subscription level and the Profitability. Testing the sixth hypothesis (H6) It can be concluded from the previous tables that the sixth hypothesis (H6), which states that there is a significant relationship between firm size and IPO’s subscription level, is accepted as there is significant positive relationship between IPO subscription level and firm size.

21. Testing the seventh hypothesis (H7) There is a significant relationship between market volatility and IPO’s subscription level. Testing the eighth hypothesis (H8) It can be concluded from the previous tables that the eighth hypothesis (H8), which states that there is a significant relationship between IPO market hotness and IPO’s subscription level, is rejected as there is insignificant relationship between IPO subscription level and IPO market hotness. Testing the ninth hypothesis (H9) It can be concluded from the previous tables that the ninth hypothesis (H9), which states that there is a significant relationship between type of the industry and IPO’s subscription level, is rejected as there is insignificant relationship between IPO subscription level and type of the industry (whether it is manufacturing or financial firm).

22. Theoretical results For the company, the IPO may have many benefits. For instance, a company typically receives a sizable amount of cash at the time of the IPO . As a result, the company is able to access investment capital from a sizable group of institutional and private . In addition, the IPO can assist the company in establishing a corporate governance structure that is more stringent. The main organized market of the Egyptian exchange (EGX), as well as any other organized stock market where listed securities are subject to rules for listing and disclosure as well as for trading.

23. Theoretical results A high subscription time indicates high investor demand for the new issue (IPO), and it is anticipated that investor confidence and optimism about the issue will have an impact. Since the beginning of this year, the Egyptian Stock Exchange has recorded positive performance, with market capitalization reaching 1.122 trillion EGP, an increase of 161.5 billion EGP. 

24. Recommendations The positive performance of the Egyptian Stock Exchange can be attributed to several factors, including the government's efforts to improve the investment climate in Egypt, the country's stable political situation, and the successful implementation of economic reforms. Additionally, the increasing number of IPOs and the growing interest of foreign investors in the Egyptian market have also contributed to the positive trend.

25. Recommendations If a company is aware that the market undervalues it, it will delay its IPO until the market is more competitive in order to secure higher prices. •When there aren't any other reputable companies issuing new shares, the companies should avoid going public.

26. Recommendations For "smaller, younger, high-tech, and VC-backed firms," the motivation for going public in the form of improving firm reputation and attracting analysts' attention is significant.

27. Future Studies This is an important issue for future research to see if the effect of IPO size, market volatility, underwriter status and reciprocal of IPO price on the performance of IPOs to other Islamic countries or is a country-specific characteristic. More firms need to be examined to identify the market characteristics that drive the returns but this requires the passage of time so that more IPOs can take place.

28. Future Studies   Based on what was announced in the government companies’ offering program, which started in 2017, and only a small percentage of it was achieved, pointing out that the new offerings will lead to an increase in liquidity rates and the attractiveness of the Egyptian market to foreign investors.