Enhancing sustainability: investigating the nexus between climate change vulnerability and IPO initial returns using moderating role of institutional quality

What the paper says

Purpose This study aims to investigate the impact of climate change vulnerability on initial public offering (IPO) initial returns in Pakistan. Furthermore, the present study used the moderating effect of institutional quality on climate change vulnerability and IPO initial return. Design/methodology/approach The ordinary least squares approach is used to study the relationship between climate change vulnerability and the initial IPO return of 102 IPOs listed on the Pakistan Stock Exchange from January 1996 to December 2019. Findings According to the study results, capacity, ecosystem, food and sensitivity are negatively significant factors in IPO initial return. The current study results are consistent with the uncertainty hypothesis. Furthermore, institutional quality as a moderating variable is significant in explaining the relationship between climate change vulnerability and IPO initial return. The results align with the average climate change vulnerability score used as robustness in the current investigation. Practical implications The findings highlight the importance of climate risk for issuers and policymakers, especially for IPO enterprises looking to raise financing. The cost of acquiring equity capital is greater for enterprises going public in climate-vulnerable nations. Originality/value Firms have frequently been the focus of studies on the impact of climate uncertainty. Therefore, this research adds to the IPO literature by analysing the climate change vulnerability to the initial IPO return using IPO samples listed in the Pakistan stock exchange. Furthermore, institutional quality has been incorporated as a moderating variable between climate change vulnerability and the initial IPO return to explain the persistent IPO initial return phenomena.