WHAT DRIVES THE AMOUNT OF CAPITAL RAISED AT IPO? EVIDENCE FROM THE WARSAW STOCK EXCHANGE

This paper examines the impact of market timing and legal changes in 2005, aimed at aligning Polish regulations on financial markets with the EU standards, on the amount of capital raised at initial public offerings (IPOs) on the Warsaw Stock Exchange. We find that although during IPOs firms sell, on average, quite the same fraction of firm ownership regardless of the year of the IPO, they raise much more capital in hot rather than in cold market conditions. We also find that firms going public in hot and cold markets as well as before and after the legal changes in 2005 do not differ significantly with regard to their profitability, leverage or liquidity ratios. The amount of money raised in hot and cold-market conditions is, however, determined by different factors. In cold-market conditions only the terms of share issue determine the amount of money raised at IPO. In hot-issue markets the size of the company is the most important factor and the financial situation of the companies and investor optimism also have a significant impact on the amount of money raised at IPO. On the other hand, contrary to the cold-market conditions, the terms of share issue are almost insignificant. The changes in the law did not affect the market timing phenomenon, but after 2005 an increasing role of profitability and investor optimism in the investors' evaluation of new share issues was observed.