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Acknowledgement

This research project report entitled “Reaction of People on Initial public offering(IPO) in
Nepal” has been prepared for partial fulfillment of the Degree of MBS under the
supervision and guidance of Mr. Prakash Singh Pradhan. I wish to express my deep and
sincere appreciation to him for support and encouragement and for sharing the
intellectual light. Without his inspiration, valuable suggestions and guidelines this work
could not have been completed.

I am thankful to my father, my mother, brother, sisters and my friends who have always
been my inspiration.

I feel highly obliged to all the respondents who provided adequate responses and supplied
all the valuable information and data required for the study. Their support and
cooperation is highly appreciable. Finally, I like to remember all the staffs at every level
in Shanker Dev Campus, MBS for their relentless effort towards making things easy for
us.
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Certification of Authorship

I certify that the work in this thesis has not previously been submitted for a
degree nor has it been submitted as part of requirements for a degree except as
fully acknowledged within the text.

I also certify that the thesis has been written by me. Any help that I have
received in my research work and the preparation of the thesis itself has been
acknowledged. In addition, I certify that all information sources and literature
used are indicated in the reference section of the thesis.

Rabina Khadka
\

Date
September 2018
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Table of Contents

CHAPTER I 1

INTRODUCTION 1

Background of the study 1

Problem Statement and Research Questions 5

Purpose of the study 8

Significance of the study 8

Structure of Report 9

CHAPTER II 10

LITERATURE REVIEW 10

Literature Review 10

Research gap 25

Conceptual Framework 26

Definition of variables 27
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CHAPTER III 29

METHODOLOGY 29

Research approach 29

Respondent and Sampling Procedure 29

Research Instruments 30

Collection of Data 30

Statistical Treatment of Data 31

Reliability Test Analysis 31

Descriptive Statistics 32

Correlation Analysis 33

Regression Analysis 33

One Way Anova 33

CHAPTER IV 34

RESULTS 34

Data analysis 34

Demographic profile of the Respondents 34

Age of the Respondents 34

Gender of the Respondents 35

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Income of the Respondents 35

Data Analysis 35

Heard about IPO 35

Getting information for opportunity to invest in IPO 37

Numbers of Companies Invested 37

Factor encourages to invest in Primary Market 38

Managing Fund for Investment 38

Average Investment for a Single Company 39

Expectation for Investment 40

Preferred sector for Investment 40

Preferred Financial Sector 41

Preferred Non-Financial Sector 41

Descriptive Statistics of the Variables 42

Pricing (Price of stock) 42

Marketing 43

Rate of Return 44

Allotment Model / Allocation 45

Underwriting 46

Analysis of gender with respect to independent Variables 46

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Analysis of Age with respect to independent Variables 48

Analysis of Income with respect to independent Variables 49

Correlation Analysis 50

Hypothesis Testing 50

Moderating Variables and Public Response 53

Regression Analysis 54

Secondary Data analysis 55

Subscription of shares 55

Public Response to Financial Sector 57

Public Response to Commercial Bank 57

Public Response to Development Bank 58

Public Response to Finance Companies 59

Public Response to Insurance Companies 61

Public Response to Non-Financial Sector 62

Major Findings 63

CHAPTER V 66

CONCLUSION 66
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Conclusion 66

Implications of the Research 67

Implications for future research 69

References I

Websites VI

Appendix VII
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List of figures

Figure 2.1: Different kinds of Issues 11

Figure 2.2: Conceptual Frame 26

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List of Tables

Table 3.1: Cronbach Alpha calculation 32

Table 4.a Age of the respondents 34

Table 4.b gender of the respondent 35

Table 4.c Income of the respondent 35

Table 4.1 Heard about IPO 36

Table 4.2 Getting information for opportunity to invest in IPO 37

Table 4.3 Numbers of Companies Invested 37

Table 4.4 Factor encourages to invest in Primary Market 38

Table 4.5 Managing fund for investment 38

Table 4.6 Average Investment for a single company 39

Table 4.7 Expectation from Investment 40

Table 4.8 Preference sector for Investment 40

Table 4.9 Preferred Financial Sector 41

Table 4.10 Preferred Non-Financial Sector 41

Table 4.11 Descriptive analysis of Pricing 42

Table 4.12 Descriptive analysis of Marketing 43

Table 4.13 Descriptive analysis of Rate of return 44

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Table 4.14 Descriptive analysis of Allotment model 45

Table 4.15 Descriptive analysis of Underwriting 46

Table 4.16 Analysis of Gender with respect to independent variables with

summary of independent sample test 47

Table 4.17 Analysis between age and independent variables and one-way

ANOVA 48

Table 4.18 Analysis between Income and independent variables and one-way

ANOVA 49

Table 4.19 Significance of independent variables with public response on I PO 51

Table 4.20 Moderating variables and Public response 53

Table 4.21 Regression Analysis 54

Table 4.22 Over and Under Subscription of Securities since 1993/94 to 2016/17 56

Table 4.23 Public Response to Commercial Banks 58

Table 4.24 Public Response to Development Banks 59

Table 4.25 Public Response to Finance Companies 60

Table 4.26 Public Response to Insurance Company 61

Table 4.27 Public Response to Non-Financial Sectors 62

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List of Abbreviation

A.D: Anno Domini

BSE: Bombay Stock Exchange

CFO: Chief financial Officers

CIT: Citizen Investment Trust

FY: Fiscal Year

GDP: Gross Domestic Product

IPO: Initial Public Offering

LSE: London Stock Exchange Ltd.

NCML: NIDC Capital Market Ltd.

NEPSE: Nepal Stock Exchange

NFCL: National Finance Company Ltd.

NIDC: Nepal Industrial Development Corporation

NMB: Nepal Merchant Bank Ltd.

NYSE: New York Stock Exchange

SEBON: Security Exchange Board of Nepal

WWW: World Wide Web

ANOVA: Analysis of Variance

RPR: Research Project Report

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MBM: Masters of Business Management

SPSS: Statistical Package for the Social Sciences

TU: Tribhuvan University

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Abstract

Initial public offering is also known as IPO. The first time a company issues stock for
sale to the public is known as Initial Public Offering or IPO. The company is said to
“going public” when this happens. The offering is highly regulated and often surrounded
by a lot of media attention.

Most of company starts out raising equity capital from a small number of investors with
no liquid market existing these investors wise to sell their stock. If a company prospers
and needs additional equity capital, at some point the firm generally finds it desirable to
“go public” by selling stock to a large number of diversified investors, Once the stock is
publicly traded, this enhanced liquidity allows the company to raise capital on more
favorable terms than if it had to compensate investor s for the lack of liquidity associated
with a privately held company. Through IPO, the founder simply wants to establish a
value and liquidity for the stock.

In Nepal the first public issue of ordinary shares took place more than 50 years back with
the public issue of Biratnagar Jute Mills and Nepal Bank Ltd. In 1937 A.D. But the
development of capital market started in 1976 A.D. After the establishment of Security
Exchange Centre with the objectives of facilitating and promoting the capital market in
Nepal. It was the only capital market institution, which undertook the job of brokering,
underwriting and managing public issue, market making for government bonds and other
financial services. Security Exchange Centre dealt in the securities as a broker as well as
regulatory body. The Centre used to take; buy and sale only on orders from interested
investors and confirm them if a price and quantity matched. There was no time limit
which a deal took place. It normally took one day to weeks. Due to this, general problems
arise while buying and selling shares. 260 public issues have been approved from
SEBON.

The present study has tried to analyze the main factors related to IPO (Price of stock,
marketing, underwriting, rate of return, allotment model and subscription pattern) and
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demographic factors (age, gender and income) determining decision regarding investment
in IPO and by what extent.

The objective of this research are to identify the main factors determining decision
regarding investment decision of public towards IPO in Nepal, to analyze the pattern of
public response towards IPO and to access the current situation of primary market. The
research mainly focuses on the responses of individual investors towards IPO and also
focuses on what they actually want in IPO and their knowledge level towards IPO.

In the present study 120 samples have been selected and administered with questionnaire,
various statistical tools such as correlation test, regression and ANOVA for data analysis
were used. The entire study has been conducted within 5% level of significance.

The study shows that public prefer to invest in financial sector rather than non-financial
sector. Commercial bank is the most preferred financial sector where as manufacturing
and processing companies is the most preferred non-financial sector. Most of the
investors expects to increase in short term value of shares from their investment and
future return is the most important factor that drives the investors/public to invest in
primary market.

The study tries to analyze the relationship between demographic variables and public
response. Three constraints age gender and income were taken as demographic variables
which might bear capacity to affects public response. The conduct study reveals no
significant relationship between age gender and income of the respondents. The analysis
of age and gender factor does not show significant relationship with any of the variable
taken for the study. Income of the respondents has significant relationship with marketing
and underwriting and no significant relationship with price of stock, rate of return and
allotment model.

The study from the regression analysis shows independent variable Rate of return has the
highest impact on public response when it comes to the public response towards Initial
public offering. Similarly, the results from the Pearson coefficient shows positive
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relationship between price of stock, marketing, rate of return, allotment model and
underwriting and public response.

The study from the secondary analysis shows that public response towards commercial
bank, development banks, finance companies and insurance companies are positive.
Similarly, public response towards the non-financial sector is also positive except
Himalayan Distillery and National hydropower co. ltd.

The study has drawn implication that the study will help the investors to invest their
money for long term rather than investing for short term profit. The study will be useful
for the Securities board of Nepal and other concerned authorities to conduct public
awareness and investors education programs to increase the level of public awareness.