A Study on Impact of Grading on IPOs Performance in Shortterm and Long-term: With Reference to Indian Stock Market

Abstract

We analyse 146 Indian IPOs (initial public offerings) that are introduced through a book building method from January 2007 to December 2008. We have considered all companies, which are available for trading in BSE (Bombay Stock Exchange) for three year. The evidence suggests that the Indian IPOs market is very slow after financial crisis period and more than 60% of the listed companies are trading below the listed prices. From the analysis of the data, it is identified than the Indian IPOs are underpriced in initial day of listing and underperforming in long-run. The average winning bidders earn a significant average abnormal return of 4.25% in the initial day of listing and loose more than 25% of their investment during the 3 year of share holding period. Finally, there is strong evidence that, the grading of an IPO has a significant impact on IPOs after market performance. The highest graded IPOs are underpriced in initial day of listing and highly over performed after 36 month of listing.