Market Timing and Operating Performance in an Emerging Market: Evidence from Indian IPOs

Abstract

The purpose of this paper is to investigate the market timing behaviour of issuers of Indian Initial Public Offerings (IPOs). The declining trend in variables reflecting investor’s sentiments and expectation in post IPO period suggested that firms took advantage of over-optimism of investors. The deterioration in post IPO performance suggested that issuer took benefit of pre IPO profit margin. In order to confirm whether IPOs were timed or not a new variable HOT was constructed which basically referred to favourable market condition for the issuers. The result based on multivariate regression suggested that Market timers, identified as firms that go public when the market is hot, tried to maximize the total proceeds at the time of IPO proving that IPOs were timed. The hot issue market effect was found to be remarkably robust; it was significant for both firm and industry-level characteristics.