Board Structure, Ownership and Performance of Indian IPOs: An Empirical Investigation

Abstract

This paper is an attempt to explore the signaling effect of corporate governance mechanisms on IPOs of emerging market economy. Using a sample of 124 Indian IPOs for the period April 2009 to March 2015, the study tries to find out the impact of board characteristics and share ownership of different stakeholders on short and long term IPO performance. In Indian context, this paper makes the first attempt to highlight the impact of corporate governance mechanisms on long run IPO performance, measured by market adjusted buy and hold returns (BHR). The results of the analysis show that in Indian context, subscription rate, equity retention by executive and non-executive directors and promoter CEO have significant impact on IPO underpricing. Board size, promoter CEO and retained strategic investors ownership have significant impact on IPO long run performance. Overall the results show that corporate governance attributes play a limited role in explaining underpricing and long run IPO performance in Indian context. However, investors can use the corporate governance attributes as certificate mechanisms to select potentially high value IPOs for both short and long-term investments. The issuing firms can restructure their boards and ownership patterns to enhance the value of the firm, to get fair value of their IPOs and benefit their long-term shareholders.