Download Course Title: ASSE 4311: Learning Assessment III / ACCT/FINA

Course Title: ASSE 4311: Learning Assessment III / ACCT/FINA
(Research proposal)
Submitted to: Dr.SANOBAR ANJUM
The Effects of Public Information in
Initial Public Operations (IPOS) in Saudi Arabia
Prepared by:
Sumaya AlEidi 200800079
Introduction
When there is a need for entrepreneurs and businessmen to raise more capital to expand and
grow their business, some shares of the business are offered to the public and become publicly
traded in the stock market or widely known as “going public”.
occurs when this happens.
An initial public offering (IPO)
IPO is a good way of getting much needed capital for business
expansion. On the side of the public, it is an excellent way for public citizens to buy a company’s
shares to own part of the business and may have the chance to earn some profits in the future. IPOs
helps extend the life of some companies while fuel the growth of others. It trades the firm’s stocks
to get the money from the stock sale to be used for financial purposes.
In Saudi Arabia, many IPOs have existed in the past years since the establishment of Saudi
Stock Exchange or Tadawul. Some of these IPOs in Saudi Arabia have been successful in getting
their target amount to be raised in the IPO. However, some have been unsuccessful or failed in the
objective of the IPO. The present paper is an attempt to find whether public information has
affected the success or failure of the IPOs in Saudi Arabia. Also, this study would like also to know
whether what type of public information has the greatest effect on the success of the IPO.
Motivation
My major in the university is finance and the topic of financial markets and stocks interests
me. This topic interests me because IPO is an important area of the field of finance.
Doing a
research on IPO will allow me to focus on it, and thus can learn about IPO in an in-depth manner.
What I have learned from the university about financial and stock markets will be expanded by this
further study. Knowing more about IPO can help me land a good job after I graduate from college.
There is a dearth of women financial market analysts in Saudi Arabia and working in this field may
serve lucrative for me. Working and completing a research paper on IPO’s success will give me
excellent knowledge of this important part of financial market that can prepare me to have a good
job and be successful in this job in the financial market. This research can add to the lack of studies
that have been done about IPOs in Saudi Arabia and this work can be a welcomed contribution to
literature on this subject. Lastly, this research is good for me because of the time table since it
could be done in one semester and the cost which would not be much.
Problem description/statement
When a company undergoes an IPO in Saudi Arabia, it lists its shares on a stocks’ public
exchange in Tadawul and subsequently in later time, from that IPO it trades its additional stocks in
the same stock exchange called secondary trading. The company is hoping that it will get from the
IPO the amount or even more of the money that it needs to expand or to grow. When it does, the
IPO is considered successful. If not, it is considered a failure.
This study is an attempt to find out if public information affects or not the success of the
IPO. Specifically the following research problems need to be answered:
1. Does public information influence the success or failure of the IPO in Saudi Arabia?
2. What factors affect success or failure of IPO in Saudi Arabia?
Formulation of a hypothesis
To answer the above research problems, the following inductive research hypotheses are
advanced:
Null hypothesis 1: Public information does not affect positively to the success of IPOs in
Saudi Arabia.
Alternative hypothesis 1: Public information affect positively to the success of IPOs in
Saudi Arabia.
Null hypothesis 2: There are no factors that affect the success or failures of IPOs in Saudi
Arabia.
Alternative hypothesis 2: There are factors that affect the success or failures of IPOs in
Saudi Arabia.
Research methodology or strategy
I am doing a mixed qualitative and quantitative research. First, I will conduct an extensive
review of literature. From it I will analyze the information and try to see if I can conclude from the
analysis of data. If I do not have enough information from the literature review, I will conduct an
interview, using a specially made questionnaire for this purpose, of finance analysts and stock
brokers regarding this matter. The interview will be encoded to the computer using SPSS 14. Then
it will be statistically analyzed for means and frequency distributions. Multiple regression analysis
will be done to find the factors that affect the success of the IPOs. The statistics will be interpreted
and conclusions will be drawn from the interpretation of statistics. After the conclusions are drawn,
recommendations maybe given if needed.
The quantitative aspect of the research is a cross sectional descriptive study that uses an
especially developed questionnaire on public information and its effects on the success of IPO for
interviews conducted on the financial analysts and stock brokers in Saudi Arabia who have
experienced working on IPOs from financial institutions who have brokered IPOs in the Kingdom.
The sampling technique used will be purposive as those who accepted to be part of the study will
only be interviewed and those that completely filled up the questionnaire will be included in the
research sample and whose responses will be part of encoded data and statistically analyzed.
The research instrument to be used for data collection was especially developed
questionnaire of three parts. The first part is about the introduction to the questionnaire. The second
part is composed of questions regarding socio-demographic variables of respondents, part 3 are
questions regarding IPO success and public information. The instrument will be subjected to
internal content validity (3 expert judges) and Cronbach alpha reliability tests (α ≥ .80).
Clarification of concepts and terms
Some concepts and terms need to be defined or clarified. Among them are:
Above Par is a term used to mention the price of security when it is traded above its real
value. A security usually trades at above par when its income distributions are relatively higher than
those of other materials being currently available in the market.
Accumulated income is the part of total income that is reused by the cooperation instead of
being distributed to the share holders as dividends. Mostly accumulated income is used by the
cooperation for its principal business or to repay its debts. It takes the place of share holder’s equity
on the balance sheet of cooperation.
Acquisition is the capital that is obtained for the purpose of buying another
business. Acquisition financing allows the user to meet their current acquisition aspirations by
providing immediate resources that can be applied toward the transaction .
Additional Paid-in Capital is the amount that is sometimes added to the surplus
contributed account in the equity shareholders section of the cooperation balance sheet. The account
shows the information regarding the overpaid amount by an investor over the par value price of the
stock issued. More paid capital can be taken by issuing preferred or common stock.
Equity Market is the market place where shares are either issued or traded, sometimes by
exchange or over the counter markets. Another name is stock market. It is one of the most important
and interesting area of a market economy as it gives other company’s access to capital and investors
a chance of ownership with the company with the aim of gaining profits in future.
Initial Public Offering or IPO is the company who sale their stock of a private company to
public company; after which the company will be publicly traded. A good example of a successful
IPO lately was Face books.
Liquidity – is the authority by which an asset or security can be changed in to cash in
market without disturbing the asset price. Liquidity is mainly done by higher trading companies at
higher levels. Assets that are easily taken and then sold out are called liquid asset also known as
marketability.
Merger –is the collaboration of two or more companies which is officially and mutually
decided by them, they offer the securities of one company to the stock holders of other company
and they in exchange surrender their stock to the other company.
Securities Exchange Commission (SEC) – is the governmental commission formed by the
legislative body to protect the securities in the market and investors. Apart from regulating and
protecting it also looks over the corporate takeover in the country. The policies administered by the
SEC, are formed to promote full public disclosure and to prevent investor from fake practices in
securities market. In Saudi Arabia it is called as Tadawul.
Share Capital is gathered from the funds raised from issue of shares in return for cash or
other considerations from the public. The amount specified as share capital in a company can be
changed from time to time by the company because each time the company offers its shares to
public in exchange of cash the share capital of the company rises.
Stock: is a security that an owner owns in a corporation and can claim on assets and
earnings of the corporation. The two main Stock types of stock are: common and preferred
stock. Common stock usually refers and gives the authority to the owner to vote at shareholders'
meetings and can receive dividends. Preferred stock means they does not have voting rights, but
have a higher claim on assets and earnings than the common shares.
Working Capital revolves around the assets of business that are applicable to its operation.
It is presented by the equation: current assets - current liabilities= Working Capital.
Framework
The final research report will include the following parts: Cover page, Executive Summary/
Abstract, Table of Contents, Introduction, Rationale /Motivation, Problem description/statement,
Formulation of a hypothesis, Clarification of concepts and terms, Literature Review, Research
methodology or strategy, Research Format/Framework, Conclusion, Recommendation, References,
and Appendix
Sources
The following articles and other sources are seen to be important in doing the research:
Arab News (2012). Kingdom remains key center for IPOs. Retrieved on September 22, 2012 from
website: http://www.arabnews.com/kingdom-remains-key-center-ipos
Ernst & Young (2012). Top 10 IPO Readiness Challenges. Retrieved on September 22, 2012 from
website: http://www.unternehmensfinanzierung.at/static/cms/sites/ unfin/ media/de/pdf/studienstatistiken/ernst-young-top-10-ipo.pdf
Ghose G. (2012). Too much of regulations may stifle economic growth, says an expert. Retrieved
on September 22, 2012 from website: http://gulfnews.com/business/ markets/too-much-ofregulations-may-stifle-economic-growth-says-an-expert-1.1073683
Gibbon M. (2012). The Art of the IPO: Lessons From Facebook, LinkedIn, Groupon and Zillow.
Retrieved on September 22, 2012 from website: http://www.huffingtonpost.com/mariangibbon/the-art-of-the-ipo_b_1909161.html
Gulf News.com (2012). Al Habtoor Group planning IPO. Retrieved on September 22, 2012 from
website:http://gulfnews.com/business/markets/al-habtoor-group-planning-ipo-1.1070849
Gulf Times (2012). Gulf IPO rebound fuelled by rising stocks, confidence. Retrieved on
September
22,
2012
from
website:
http://www.gulf-times.com/site/topics/
article.asp?cu_no=2&item_no=531414&version=1&template_id=48&parent_id=28
Nair D. and French D. (2012). Saudi airlines unit picks HSBC for planned IPO -sources
http://in.reuters.com/article/2012/09/10/saudi-airlines-ipo-idINL5E8KA9BN20120910
Saudi Gazette (2012). MENA IPOs up 344% to $1.29b in Q2 2012 Al Tayyar Travel Group biggest
regional IPO deal at $364.65m. Retrieved on September 22, 2012 from website:
http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120802131842
Saudi Gazette (2009). Saudi Arabia IPOs raise $1.03 billion in 2009. Retrieved on September 22,
2012 from website:
http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=2009123158649
www.economist.com. (2012). IPOs in Asia. Sinking, not listing. The fervor for public placements
in Asia is cooling. Retrieved on September 22, 2012 from website:
http://www.economist.com/node/21556598
Qualifications and experience
As a student of finance, I believe that I will be able to complete a very good research
paper on IPOs in a semester’s time. I have learned courses in finance that deals with
concept, principles and theories on securities and stocks. I believe I have a very good
knowledge of the subject matter that can allow me to do a good analysis. My critical
thinking and analysis were developed by many courses on critical thinking. Also I have
done a lot of research in finance and communication subjects that I will be able to prepare
and complete a good research paper.