Flipping activity in the Pakistan IPO market

Flipping is acknowledged as one of the anomalies surrounding Initial Public Offering (IPO) activities. Despite its recognition, little attention has been given to examining whether it exists in the Pakistani IPO market. Further, factors that can explain this phenomenon remain unexplored in the Pakistani IPO market. Therefore, this study investigated whether flipping exists and its determinants, including state-owned IPO, sponsor ownership, pricing mechanism, political government regime, lock-up period, and lock-up ratio. The focus on such variables was motivated by the unique features, institutional settings, and regulatory frameworks of the Pakistani market that may influence the IPO flipping activity. The determinants were considered using demand and supply, signalling theory, and loss aversion bias. A sample of 95 IPOs listed on the Pakistan Stock Exchange from 2000 to 2019 was used. The results of the t-test depict that the Pakistan IPO market experience high flipping activity on the first day of listing. The ordinary least squares and quantile regression results show that state- owned IPOs and voluntary lock-up ratios have positive impacts on the flipping of IPO shares. In contrast, the book-building pricing mechanism has a negative impact. Furthermore, lock-up periods for the entire business life and five years, as well as the lock-up ratio, have a negative impact on IPO flipping activities because the act of pre- IPO shareholders retaining the shares for long periods signals quality to investors. In addition, investors’ demand moderates the positive link between state-owned IPO and flipping activity. Overall the findings of this study provide evidence of the existence of flipping activities, and its predictors in Pakistan. Moreover, the outcome has significant implications for issuers and regulators in terms of recognising the continuation of the current lock-up provision and book building price mechanism to reduce flipping activity.