Singapore is better for IPOs compared to the US, reveals report

Companies can raise more capital on the SGX.

For a company looking to go public, offering shares on the Singapore Exchange might prove to be more lucrative compared to listing on US stock markets.

A report published by the University of Wollongong showed that the SGX is a more efficient market for companies to undertake IPOs than the USA because stocks on the SGX are less underpriced. Underpricing is the discount on the issue price relative to fair value required to induce investors to fully subscribe for shares in an IPO.

The study focused on a sample of securities which would be too small to qualify for inclusion in the S&P 500 in the USA yet big enough to qualify for inclusion in the FTSE ST All-Share Index (FSTAS) in Singapore.

“Empirical analysis demonstrates that average underpricing is approximately 8 to 12% lower (i.e. the issue price is discounted less) for SG IPOs compared to a sample of matched US IPOs,” said the report, which was authored by Alex Frino, a professor of economics.

“This implies that SG capital markets are more efficient than US markets in pricing IPOs which do not qualify for inclusion in the S&P 500 but do qualify for inclusion in the FSTAS. This implies that companies are able to raise more capital, ceteris paribus, in SG markets,” the report noted.