This thesis investigates initial public offerings (IPOs) in the Gulf Cooperation Council (GCC) region between 2003 and 2010. The GCC is a political and economic organization which comprises six Gulf countries: Saudi Arabia, Kuwait, Qatar, Bahrain, the United Arab Emirates and Oman. A large number of companies in the GCC have gone public over the last decade. There are three essays in this thesis. The first essay examines the financial and operating performance of 52 IPOs (using accounting-based measures). It compares and contrasts the performance of IPOs between the pre- and post-IPO periods. In addition, the first essay investigates the reasons for change in performance between the two periods. The contributions of this essay are three fold. Firstly, this is the first study to examine the operating performance of a sample of IPOs from the GCC region. Secondly, a new technique is used to examine the operating performance of IPOs by employing a model that is based on panel data. Thirdly, several theories are discussed and explanations are provided for the change in performance of IPOs in the GCC. The findings in this essay indicate that the operating performance of IPOs in the GCC declines after going public, and this finding is consistent with pre-existing IPO literature. The deterioration in performance among these IPOs begins in the year of going public and intensifies in magnitude in subsequent years. Moreover, this essay suggests that the change in ownership structure is the main reason for the decline in IPO performance. Nonetheless, the results also lend support to other theories, such as lack of opportunity and “windowdressing”. The second essay investigates the short- and long-run stock returns (using stock-price based measures) of 139 IPOs in the GCC between 2003 and 2010. This essay makes three main contributions to the literature. Firstly, the essay extends the analysis of Al-Hassan, Delgado and Omran (2010) on 47 IPOs from the GCC to a much larger sample size and longer time frame. Secondly, the study explains underpricing as a function of four major factors: firm characteristics, subscription period outcome, listing day investors’ behaviour and market conditions. Thirdly, the research provides evidence about the long-run performance of these IPOs. The study measures IPO performance relative to the offering price, in addition to the traditional method which uses the listing day closing price. This measures the underpricing of IPOs beyond the listing day, including the second day, first week, first month, first six months and first year post-listing. The underpricing (short-run stock returns) of these IPOs is significant at 227.4%, higher than that documented in both developing and developed nations. The study also investigates the reasons underlying such underpricing and finds that such substantial underpricing is caused predominantly by the unique institutional framework adopted in the GCC. The institutional settings of the GCC promote both strong demand during the subscription period and aggressive speculation on the listing day. Contrary to the large returns in the short run, these IPOs underperform their GCC market indices in the long run. This finding is consistent with the pre-existing literature, in that IPOs which offer the greatest underpricing initially tend to achieve the worse returns over the long run (over one-, two- and three-year periods). The third essay, for the first time, models the underpricing phenomenon in a supply and demand simultaneous equations model. Using a unique dataset of 76 Saudi IPOs comprising data on the number of subscribers to each IPO and the allocation (the number of shares obtained by subscribers), the study constructs two simultaneous equations, one using the opening price (the first post-listing price adjustment) and the other using the closing price (the last price adjustment). Using the opening price, the results indicate that excess demand in the subscription period converts immediately into excess supply once the IPO shares are floated on the market. This immediate conversion stops the IPO price from continuing to rise. In the second system, using the closing price together with the volume of shares, the estimates show that the curves of both the supply and demand of IPOs are significantly negative, with the supply curve being above the demand curve, and also being steeper. This implies that supply decreases at a greater and faster rate than does demand, mainly because of the presence of flippers in the market. This essay discusses the supply and demand curves of IPOs theoretically, draws them graphically, and proves them empirically.

This thesis investigates initial public offerings (IPOs) in the Gulf Cooperation Council (GCC) region between 2003 and 2010. The GCC is a political and economic organization which comprises six Gulf countries: Saudi Arabia, Kuwait, Qatar, Bahrain, the United Arab Emirates and Oman. A large number...