The Impact of Underpricing, Liquidity, and Ownership on Post Performance of IPO Stocks

Abstract

Underpricing is the common characteristic found in the Initial Public Offers to a greater extent. The present paper explores literature of underpricing, ownership, liquidity and performance of the Initial Public Offer (IPOs). IPOs have been available for decades in Indian stock markets and active in the past two decades. State hold public sector organization have higher performance in the IPO in specific to Indian context. The present study attempts to understand the impact of the liquidity and underpricing and ownership up on both the short term and long term performance of the IPOs. In Indian context it has been found that there is active presence of the overpriced IPOs simultaneously with the underpriced IPOs. The performance of the underpriced IPO stocks in both the short term and long term has been greater than the performance of the overpriced IPO stocks. It is found that the underpriced IPOs have higher dependence on the underpricing provided for both the long term and short term performance, Whereas the overpriced IPO stocks depends on the long term liquidity characteristics for the long term performance. However the market adjusted returns are influenced by the liquidity in the long term and non-significantly by the underpricing. The literature also supports the dependence of the liquidity upon the ownership structure of the stock, whereas the results of Indian IPO market in this study doesn’t cohere with the literature. The study attempts to understand the impact of underpricing, ownership and liquidity upon the performance of the IPO stocks both in the short and long terms.