INVESTMENT BANK REPUTATION AND IPO UNDERPRICING: EVIDENCE FROM EMERGING MARKETS

Abstract

This study examines the relationship between investment bank reputation and IPO underpricing in the Pakistani capital market. IPO underpricing occurs when the offer price of newly issued shares is lower than the first-day market price, resulting in positive initial returns for investors but potential capital loss for issuing firms. The study adopts a quantitative research approach and uses secondary IPO-level data from Pakistan Stock Exchange records, IPO prospectuses, company reports, and related public sources. IPO underpricing is used as the dependent variable, while investment bank reputation is used as the main independent variable. Issue size, oversubscription, book building method, and sector controls are included as control variables. The data are analyzed through descriptive statistics, correlation analysis, and multiple regression analysis. The results show that investment bank reputation has a negative but statistically insignificant effect on IPO underpricing, suggesting partial support for the certification hypothesis. However, oversubscription has a positive and statistically significant effect, indicating that investor demand is a major driver of IPO underpricing in Pakistan. Issue size shows a negative marginal effect, while book building and sector controls remain statistically insignificant. The findings suggest that reputable investment banks may help reduce uncertainty in IPO pricing, but investor demand plays a stronger role in explaining first-day IPO returns. The study contributes to IPO literature by providing evidence from an emerging market context and highlights the need for improved IPO pricing transparency, stronger disclosure practices, and more effective demand management in Pakistan.