Analyzing Long-run Performance of Select Initial Public Offerings Using Monthly Returns: Evidence from India

Abstract

The anomalies in respect to initial public offering (IPO) performance in literature have stimulated multitude of research works in explaining critical issues, such as under-pricing during short-run and underperformance phenomena in the long run as is observed globally. This study endeavours to look into the long-run performance of select Indian IPOs using monthly returns following event study methodologies. Besides parametric tests, it has also applied wealth relative as a measure of performance of those IPOs. The article documents positive long-run average abnormal returns for Indian IPOs, unlike other countries. However, statistically we fail to reject the null hypothesis of zero abnormal return and therefore conclude existence of no significant long-run underperformance or over-performance in the Indian IPO stocks. In exploring the possible factors which may have bearing in determining the longrun performance of the IPOs, it is observed that book-to-market value (BMV) ratio, age of the IPO firm and aftermarket corporate measures, such as bonus issue and stock split, have significant predictive power in explaining the long-run performance.