Inflation and stock market growth: the case of IPO withdrawal

Abstract

Purpose

Driven by the anticipated global stagflation, this straightforward yet novel study examines the cost of inflation as a macroeconomic factor by investigating its influence on stock market growth. Thus, this paper aims to examine the impact of inflation on the probability of initial public offering (IPO) withdrawal decision.

Design/methodology/approach

The paper employs a large dataset that covers the period January 1995–December 2019 and comprises 33,536 successful or withdrawn IPOs from 22 nations with various legal and cultural systems. This study applies a probit model utilizing version 15 of Stata statistical software.

Findings

This study finds that inflation is substantially and positively correlated with the likelihood of IPO withdrawal. Results of this study show that the IPO withdrawal decision increases up to 90% when the inflation rate climbs by 10%. Multiple robustness tests provide consistent findings.

Practical implications

This study's implications are important for researchers, investment banks, underwriters, issuers, regulators and stock exchanges. When processing IPO proposals, investment banks, underwriters and issuers must consider inflation projections to avoid negative effects, as demonstrated by the findings. In addition, regulators and stock exchanges must be aware of the detrimental impact of inflation on competitiveness in attracting new listings.

Originality/value

To the best of the authors’ knowledge, this study is the first to present convincing evidence of a major relationship between IPO withdrawal decision and inflation.

Citation

Jamaani, F. and Alawadhi, A.M. (2023), "Inflation and stock market growth: the case of IPO withdrawal", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2023-0452