Abstract:
This study investigates the relationship between initial public offerings (IPOs) and
macroeconomic variables: evidence from Sri Lanka’s stock market from 2005 to
2024. Accordingly, the required data were gathered over the last 20 years as time
series data. It is interesting to note that this period encompasses both the economic
crisis in Sri Lanka and the subsequent peaceful environment that followed the crisis.
The primary goal is to address the lack of empirical research on IPO dynamics in Sri
Lanka. Utilizing a quantitative approach, the study analyses secondary data extracted
from the annual reports of the Colombo Stock Exchange and the Central Bank of Sri
Lanka. The study uses the number of initial public offerings per year as the dependent
variable and gross domestic product, inflation, the 91-day interest rate, and exchange
rate as the macroeconomic variables. Methodologically, the research
employs descriptive analysis to provide a basic understanding of the variables,
Augmented Dickey-Fuller (ADF) tests for checking stationarity, Johansen's co integration test for long-term relationships, Granger causality tests for causal
relationships, and correlation analysis to explore the relationship among these
variables. The findings of the current study reveal a significant relationship between
the independent variables and the number of initial public offerings per year. There
is a significant, strong positive relationship between gross domestic product and the
number of initial public offerings, while inflation, exchange rate, and the 91-day
interest rate exhibit significant, moderate negative relationships with initial public
offerings. The results highlight the importance of macroeconomic stability in
promoting initial public offerings activity and provide valuable implications for
policymakers, investors, companies planning to go public, and academics. The study
contributes to the limited empirical literature in the Sri Lankan context and suggests
directions for further research in emerging markets
