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Corresponding author:
1 Department of Economic and Management, Odesa I.I. Mechnikov National University.
E-mail: olga-poberezhec@ukr.net
2 Department of Accounting, Analysis and Audit, Odessa National Polytechnic University.
E-mail: kovalova.helen@gmail.com
3 Department of Financial Management and Stock Market, Odessa National Economic University.
E-mail: iorgachova@i.ua

DOI: https://doi.org/10.30525/2256-0742/2018-4-2-178-183

TRANSFORMATION PROCESSES OF THE IPO MARKET:
UKRAINIAN AND WORLD EXPERIENCE

Olga Poberezhets1
Odesa I.I. Mechnikov National University, Ukraine

Olena Kovalova2
Odessa National Polytechnic University, Ukraine

Maria Iorgachova3
Odessa National Economic University, Ukraine

Abstract. The study of IPO as a source of financial resources meets the current needs of the corporate sector in
conditions of disintermediation and securitization trends of the financial market. In developed economies, there
is a process of shifting the emphasis in the direction of capital attraction precisely on the stock market segment
of the financial market, which has a number of advantages over the banking system that are also connected with
the innovation and investment development of the national economy. The formation of the proper basis for the
development of IPO market determines the timeliness of the consideration of this issue because it didn’t obtain
a sufficient spread. The emergence of new instruments is the feature that characterizes the modern stage of the
development of the Ukrainian and world economy. Their application is a condition for the further development and
use of the potential opportunities for the improvement of economic systems. Enterprises are able to meet current
market needs and challenges due to orientation to modern trends and timely reaction to the latest achievements.
One of them is the IPO (initial public offering), which is the primary public offering of shares. Participants of the
Ukrainian market face a number of obstacles during IPO on the domestic and foreign stock exchanges. It necessitates
a comprehensive review of this issue for a further developing of this method of accumulating financial resources.
The purpose of this article is to identify the IPO market as a system of interrelated components that form its essence,
and on the basis of a generalization of the constraining factors of development – providing recommendations on
the perspective lines of improving the IPO market, taking into consideration the peculiarities of the Ukrainian and
world stock market. Methodology. Analytical market reviews, materials of periodicals, resources of the Internet are
the informational and methodological basis of the investigation. To achieve the goal set, the following general
scientific and special methods were used: economic and mathematical methods, structural-logical analysis, analogy,
synthesis, comparison and integration, factor analysis. Results. The factors that should be taken into account by the
issuer for the success of the IPO procedure are justified. Problematic aspects and directions of their elimination are
determined for every concrete stage of the IPO. The model for the domestic companies to enter the IPO market is
proposed that has a special significance in the context of increasing the volume of financing innovative activity.
Directions for reforming the regulatory and legislative framework are considered. Practical implications. Directions
for improving the process of passing through the IPO stages can be applied by issuers, taking into account the
peculiarities of the domestic and world stock market. Value/originality. The biggest part of the scientific works is
devoted to the theoretical aspects of IPO, clarifying the essence of this process, structuring its participants, the
advantages of carrying out. At the same time, a part of the works is devoted to the consideration of IPO as an
instrument for attracting financial resources by corporations. The authors reviewed IPO in a system that combines
the above aspects with its procedure stages and propositions to cancel out constraining factors that have a place on
each step of IPO. The presented integrated approach will allow expanding the use of the IPO in the financial market
as a source of financial resources for the corporative sector. It is also important to consider the impact of the planned

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1. Introduction
Innovative development of the corporative sector is

based on the capital raising on the stock market in the
developed economic systems. Realization of the IPO didn’t
have widespread use in the modern economic situation in
Ukraine that causes an actuality of its basis formation.

Interest in the emission of shares as a source of
capital raising is gradually growing after the crisis of
2013–2014, which differed in the absence of the IPO
of Ukrainian issuers. The definition of ways how to
eliminate the factors constraining the implementation
of the IPO requires a detailed consideration.

Theoretical basis and practical aspects of IPO market
development were reflected in the scientific works of
V. Kublikov, M. Sokolov, M. Stefanishin, J. Lerner.

J. Lerner and M. Stefanishin paid attention to the
IPO main stages in their works. Such researchers as
V. Kublikov and M. Sokolov focused on the main trends
in the development of the IPO market and peculiarities
of privatization of state enterprises with the help of the
IPO financial instruments.

The development of an integrated approach to
reforming the IPO market, which is based on the
interaction of all its structural elements, the specifics
of the procedure on stock exchanges, remains an
insufficiently developed scientific question.

2. Factors of successful Initial Public Offering
(IPO)

Based on the pluralism of the scientific approaches,
the world exchange practice and the domestic regulatory
and legislative framework, IPO should be viewed as a
procedure of obtaining public status by a company that
includes operations of organizational, legal, financial
character involving both professional and collateral
participants of the stock market and groups of interested
investors who are not known in advance according to
the announcement of stock trading in the mass media.
The choice of a professional trade organizer is one of the
key decisions that the issuer must take in the process of
attracting financial resources within the IPO. It is based
on the factors that should be taken into account for the
success of the securities placement:
– Issuing volumes according to the IPO prospectus
should correspond with the stock market capacity.
– An effective demand and correspondence of the
issuer’s goals and the investor for searching for strategic
or portfolio investors.

– Transparency and availability of information for
investors, counterparties and its comparison possibility
in the question of concrete issuers on the stock
exchange. Peculiar features of sector profile of issuers
that are represented on the determined stock exchange.
– Listing criteria of the stock exchange.
– Evaluation of compliance with the declared free-float
level by the stock exchange in order to ensure favourable
conditions for the secondary securities market.
– The similarity of the legal environment of the national
stock market and the foreign trading platform that is
chosen for IPO in order to enhance the issuer’s image and
to attract capital cross out of the national borders.
– Determination of the prestige of the IPO on a
concrete stock exchange.
– The presence of “lock-up” limits, which are
a preventive tool to protect the issue price from
fluctuations and sometimes are an indispensable
condition that can be put forward by the underwriter
in accordance with the practice of security issue on a
certain stock exchange.
– Compliance with the principles of liberalization and
the availability of the characteristics of an integrated
financial market to overcome regulatory and legal
restrictions for foreign direct market participants.
– Features of trading operations on the stock exchange.
– The period, during which the company acquires the
status of the public.
– The cost of services of professional and collateral
participants of the stock market. Stock exchanges charge
listing fees using a variety of methods: volume of shares
offered, value of shares offered, market capitalization or
flat fee.
– The need to present the financial statements of the
issuer in accordance with the accounting standards that
are fixed in the legal environment of the functioning of the
stock exchange (IFRS, US GAAP, HKFRS, PRC GAAP).
– The tax burden on the issuer.

3. Comparative analysis of listing
standards and fees

Estimation of the company’s potential compliance
with the listing criteria set by the stock exchange is one
of the key factors that should be taken into account in
the process of IPO (Table 1). The table shows the main
requirements for issuers within the listing procedure on
the main stock exchanges that were the largest financial
centres for IPO in the first three quarters of 2017: 105
successful placements were made on the Hong Kong

legislative reforms on the development of the IPO market in Ukraine. Taking into account all the components of the
IPO market and existing features of the IPO within the framework of the national financial market and world stock
exchanges will highlight directions of the IPO market spread.

Key words: IPO, emission, securities, stock exchange, listing, innovation activity.

JEL Classification: G15, O16

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Stock Exchange and GEM (9.1% of global IPOs), the
National Stock Exchange of Australia – 61 (5.3%), the
London Stock Exchange – 50 (4.3%), the New York
Stock Exchange – 52 (4.5%), and the NASDAQ – 59
(5.1%). Asia-Pacific exchanges continued to dominate
the global IPO markets in Q3 2017, accounting for
65% of IPOs globally and 43% of global capital raised.
IPO activity of the Americas region and the region of
Europe, Middle East, India, and Africa (EMEIA) was
approximately on the same level according to proceeds –
28% and 29% (Global IPO trends Q3, 2017).

As a rule, the higher listing criteria for the issuer’s
company mean the longest period, during which
the company is transforming into a public one:
12-24 months for an IPO in the Americas region, an
average of 12 months for IPO in the EMEIA region,
Asia-Pacific region – 6-12 months. The mentioned IPO
timelines should be considered for informational and
comparative purposes only.

The actual IPO process and timeline can vary with the
specific circumstances of an individual company.

Comparing the listing requirements of international
stock exchanges with the Ukrainian stock market
practice, we should note positive changes towards the
transformation of domestic legislation in accordance
with the world realities of doing business and compliance
with the principles introduced by IOSCO.

In particular, it concerns Bill No. 5592-d of
03.10.2017 on simplifying doing business and attracting
investments by securities issuers.

This law should become an innovation of the National
Commission on securities and stock that will introduce
compulsory passing of listing procedure by public
corporations.

As a result, the market will obtain the higher quality
of securities of the Ukrainian stock exchanges, the
transparency of operations and be the basis for the
inflow of new investments.

This reform will increase the productivity of post-
privatization development of companies in the financial
market of Ukraine.

The maximum approximation of the second level
listing requirements of Ukrainian companies to the
modern practice of stock exchanges in the EMEIA
region is proved by comparing such stock market listing
standards as the timeline of going public (3 years), free-
float level (10-25%).

4. Problematic aspects and directions
for improving IPO market

An interest to the IPO of shares and Eurobonds as
sources of attracting capital is gradually growing after the
crisis of 2013–2014 that is characterized by the absence
of initial public offerings of shares of the Ukrainian
corporate sector on national and international stock
exchanges.

The factors that hinder the development of the
IPO market by the Ukrainian corporate sector are
systematized in the PWC study.

Table 1
Comparing stock market listing standards and fees: a regional aspect of IPO (created by the authors considering
(EY Global, 2012)

Exchange listing
standards

Americas region EMEIA region Asia-Pacific region

New-York
(NYSE)

NASDAQ
(Global Select

Market)

London Stock
Exchange (main

market)

Warsaw Stock
Exchange

Hong Kong Stock
Exchange

National Stock
Exchange of

Australia
Time line of going
public

3 years 2 years 3 years 3 years 3 years 2 years

Income, revenue
and profits

Revenues (most
recent fiscal year)

US $75 million

Revenue >=
US $110 million
(previous fiscal

year)

- -

Aggregate profit
of at least HK $50
million in the last

three financial
years

Positive financial
result in the last

two financial years

Market
capitalization

Revenues (most
recent fiscal year)

US $75 million

Revenue >= US
$110 million

(Previous fiscal
year)

US$1.2 million
(GBP700,000)

US$10 million US$25 million AUD $0.5 million

Number of float
shares

5,000
shareholders for
foreign issuers

1.25 million
shares

25% 5-10% 25% 25%

Equity market
listing fees

US $ per share:
0.001-0.005

US
$125,000-225,000

GBP 6,389-
369,689

PLN 8,000
-96,000

From HK$
150,000 to HK$

650,000

US
$0.08 per share

Annual exchange
fees

US $ 0.001 per
share, minimum

US $ 38,000

US
$35,000-99,500

GBP 4,200 -
41,400

PLN 9,000-PLN
70,000

From HK
$145,000 to HK

$1,188,000

From US
$8,000

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Vol. 4, No. 2, 2018
The results of the investigation can be schematically

represented (Fig. 1) (PwC. Capital markets in 2025:
future of financial markets, 2011).

It is advisable to solve indicated problems with the
participation of regulatory agencies, self-regulating
organizations, and all interested participants of
the stock market in accordance with the successful
passage of the IPO stages (Fig. 2) (Created by the
authors).

The existing culture of corporate governance, the
high level of information protection on domestic
enterprises in the issues of financial disclosure and
an inefficient tax system are complementary to the
above factors.

Fig. 1. The results of a survey of corporate sector respondents
about the factors that hinder the development of the IPO
market on stock exchanges of developing countries

Fig. 2. Problem aspects and directions for improving the process of passing through the IPO stages

32%
29%

13%

7%
4%

15%

0%
10%
20%
30%
40%

Regulatory framework

Political uncertainty

Low economic growth rates

Investment risks

Rising inflation

Pessimistic expectations of
market participants

Share in the structure of the answers

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But, nevertheless, the main problem is to transform
the regulatory framework, which must meet the
current needs of direct participants on the stock market.

5. IPO as an innovative component
of the economy’s real sector development

It should be noted that Ukrainian financial market
lacks a properly formed segment of institutional
investors. The result is the absence of “long” liabilities at
the disposal of pension and investment funds, insurance
companies.

The problem of improving the IPO market is
especially acute because the accumulation of resources
through the initial placement of securities is one of the
effective ways of financing an innovative activity (Fig. 3)
(Built on the basis of data of the official site of the State
Statistics Service of Ukraine and National Securities
and stock market commission, 2018).

The analysis proves that there is a close direct link
between the number of IPOs and the source of financing
an innovative activity that is called by the State Statistics
Service of Ukraine as “other sources of financing.” The
results demonstrate that the IPO is one of the sources of
financing an innovative activity of Ukraine.

It should also be noted that most of the domestic
companies that had an experience in holding IPOs used
to issue corporate bonds earlier due to the peculiarity of
the domestic corporate governance model, which has
features of a debt nature that must be taken into account in
the proposed model for the domestic companies entering
the IPO market (Fig. 4) (Created by the authors).

Issue
of bonds

Private
joint stock
companies

Public
joint stock
companies

Internal
IPO

IPO taking into account the

obstacles to overcoming

Fig. 4. Model of entering the IPO market by Ukrainian
companies

6. Aspects of reforming IPO
regulatory framework

Certain measures are taken to reform the regulatory
and legislative framework for the development of the
IPO market:
– Implementation and monitoring of the adaptation
of IOSCO principles that are related to the activities
of issuers in the direction of full, trustworthy, and
timely disclosure of information, the equal rightness of
investors, and raising accounting standards (National
Securities and stock market commission).
– The enactment of the bill 5592-d by the Verkhovna
Rada of Ukraine, which opens new perspectives and
peculiarities of the recognition of the publicity of joint-
stock companies, which should promote the expansion
of the exchange register and become an investment
incentive for domestic and foreign investors.
– The implementation of pension reform, which
promotes the increase of the volume of assets at the
disposal of institutional investors and is the basis for
the formation an effective demand on the certain
financial instruments on the stock market.
– Realization of the Complex Program of the
Development of the Financial Sector of Ukraine
until 2020 in the sphere of modernization protection
of consumer and investor rights, as well as creating
conditions for free capital flow (Resolution of the
Board of the National Bank of Ukraine, 2015).

But, further improvement requires, firstly,
mechanisms of protection the financial and economic
security of the issuer in the process of acquiring
public status by the company; secondly, further
transformation of the listing criteria in order to
approximate the current paradigm of estimating
issuers in Ukraine to international practice, to promote
the increase in the number of IPOs and the volume
of attracted resources; thirdly, the approaches to the
procedures “Due Diligence” and “Roadshow ” in order
to establish a weighted issue price for IPOs.

y = 0,0009x - 0,1645
R2 = 0,8145

0 1000 2000 3000 4000 5000 6000 7000

Sour ces of f inancing of innovat ion act ivit y at t he expens e of ot her s our ces , m ln.UAH.

N
u

m
b

er
o

f
IP

O
s,

p
cs

Fig. 3. Graphical representation of the results of the analysis of the relationship between the number of
IPOs and other sources of financing an innovative activity

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Vol. 4, No. 2, 2018

7. Conclusions
The results of the study indicate that IPO is a source

of financing the investment and innovative activity of
enterprises that has special features of realization at
different world financial centres. The model of entering
the IPO market by Ukrainian companies should be
modernized to overcome the identified factors that

are specific on each stage of its implementation,
taking into account the peculiarities of the Ukrainian
market and focus on the leading trends. Reforming
and implementation of innovations of the regulatory
framework is the priority task for the modernization of
the IPO market that is also the basis for protection of
the interests of stock market participants.

References:
EY Global (2017) Reading allowed: Global IPO trends Q3 (2017). Retrieved from: http://www.ey.com/Publication/
vwLUAssets/ey-global-ipo-trends-q3-2017/$FILE/ ey-global-ipo-trends-q3-2017.pdf
EY Global (2012) Reading allowed: Comparing global stock exchanges Stock market listing standards and fees.
Retrieved from: http://www.ey.com/Publication/vwLUAssets/Comparing-global-stock-exchanges-Eng/$FILE/
Comparing-global-stock-exchanges-Eng.pdf
National Securities and stock market commission (2018) Electronic resources. Retrieved February 16, 2018 from:
http://www.nssmc.gov.ua/
PwC (2011) Reading allowed: Capital markets in 2025: future of financial markets. Retrieved from:
https://www.pwc.ru/en/capital-markets/publications/assets/capital_markets_in_2025_rus.pdf
Resolution of the Board of the National Bank of Ukraine (2015) Reading allowed: Complex program of development of
the financial sector of Ukraine till 2020. Retrieved from: https://bank.gov.ua/doccatalog /document?id=18563297
State Statistics Service of Ukraine (2018) Electronic resources. Retrieved February 16, 2018 from:
http://www.ukrstat.gov.ua/