Regulation of Initial Public Offering of Shares in Ethiopia: Critical Issues and Challenges
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Date
2011-01
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Addis Ababa University
Abstract
An IPO (Initial Public Offering of Shares) is offering stock to the public on an open
market for the first time. The IPO is the process in which a company first offers its shares
to the public and becomes a publicly traded company. The reason for the regulation of
public offering is that members of the public who are subscribed shares in a company are
entitled to full disclosure to the nature of what is on that offer before they make a
financial commitment, and to provide them with effective remedies to redress any loss
incurred as a result of failure on the part of the company to make complete or accurate
disclosure.
The paper investigates the issues and challenges in relation to the regulation of initial
public offering of shares in Ethiopia. Issues like approval of public offering; regulation of
prospectus content, form and distribution; the publication and advertisements of the offer;
the market conducts of the participants and their civil and criminal liability as well as the
issues associated with the regulatory framework of the securities market are analysed.
The findings of the research show that there are inadequate legal and institutional
frameworks to regulate the public offering of shares in Ethiopia. Poor approval of public
offering, prospectus regulation, and insufficient registration of intermediaries and
regulation of their market conducts and lack of public and self regulatory institutions
characterize the process of public offering. Laws governing civil liabilities for
misconducts in public offering of shares are flawed in multifarious ways with weaknesses
such as ambiguities and short comings in proscribing acts and omissions which entail
liability, identifying potentially liable persons, high burden of proof, and problems in
enforcement.
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Keywords
Regulation, Public Offering of shares, issuers liabilities, Regulatory framework, and self regulation