Performance of IPOs of Indian Companies Backed by Private Equity

Abstract

We examine 616 Indian initial public offerings (IPOs), including 116 IPOs backed by private equity (PE), between 2000 and 2016, to test whether PE-backed IPOs perform better than non-PE-backed IPOs in the short run as well as in the long run in terms of cumulative abnormal returns (CARs). We also examine the impact of the PE firm nationality on post-IPO performance. Consistent with the existing literature, we find underperformance for all IPOs, on an average, within 1 year. However, PE-backed IPOs have lower degree of underperformance than non-PE-backed IPOs. We also find that size, liquidity and leverage have a positive impact on the post-IPO performance after the financial crisis, whereas issue amount and capital issue year are negatively correlated to CARs before and during the crisis. We also find significant effects of PE firm nationality on CAR development. IPOs backed by India-dedicated PE firms perform best, while those backed by foreign PE firms perform worst and even underperform non-PE-backed IPOs. IPOs by foreign PE firms perform better if they co-invest with India-dedicated PE firms.