Indian Initial Public Offerings Research Articles

FII Inflows into Indian IPOs and its Impact on the Indian Stock Market

Foreign portfolio investments (FPIs) gained momentum in India, particularly, in the post-liberalization period. On the other hand, the Indian primary market acts as the prime platform for corporate capital formation especially through the initial public offering (IPO). The foreign institutional investments have always been known for their volatile nature and quick reversal. This article is an attempt to identify how the foreign institutional investments in the Indian IPO segment augment financial development, and to what extent such investment can be considered close to real investments by being in the primary market.

Performance of Private Equity Backed Initial Public Offerings: Empirical Evidence from India

This article investigates the initial and long-term performance of private equity (PE) backed initial public offerings (IPOs) in India. Using the data of IPOs listed on the Bombay stock exchange from 2009 to 2012, the authors investigate the initial performance of the IPO on listing day for both PE equity backed IPOs and non-PE backed IPOs and documented that PE backed IPOs show less underpricing than non-PE backed IPOs. Then, they compared the long-term performance of PE and non-PE backed IPOs for two years post-listing and documented less underperformance of PE backed IPOs compared with non-PE backed IPOs. Finally, the authors confirmed “fads” in Indian IPOs market but also recorded that the degree of fads was less in PE backed IPOs than in non-PE backed IPOs.

A Study on Impact of Grading on IPOs Performance in Shortterm and Long-term: With Reference to Indian Stock Market

We analyse 146 Indian IPOs (initial public offerings) that are introduced through a book building method from January 2007 to December 2008. We have considered all companies, which are available for trading in BSE (Bombay Stock Exchange) for three year. The evidence suggests that the Indian IPOs market is very slow after financial crisis period and more than 60% of the listed companies are trading below the listed prices. From the analysis of the data, it is identified than the Indian IPOs are underpriced in initial day of listing and underperforming in long-run. The average winning bidders earn a significant average abnormal return of 4.25% in the initial day of listing and loose more than 25% of their investment during the 3 year of share holding period. Finally, there is strong evidence that, the grading of an IPO has a significant impact on IPOs after market performance. The highest graded IPOs are underpriced in initial day of listing and highly over performed after 36 month of listing.

A Study on Performance Evaluation of Initial Public Offerings (IPOs) in India during 2007-13

The authors analyze 146 Indian Initial Public Offerings (IPOs) that were listed in Bombay Stock Exchange (BSE) between January 2007 and December 2009. The units of the sample are selected on the basis of companies available in the Indian stock market for three years for calculating short-term and long-term returns. The evidence suggests that the IPOs are initial day underpriced by 4.25 per cent and underperformed by 29.06 per cent after 36 months of listing. The study also finds that issue variables are highly influencing the IPOs performance in short run and long run but age of the company doesn't have any influence on its performance during the study period. The JEL classifications are G12, G14, G24, and G32.

Foreign Institutional Investors and the Indian IPO Market— An Investigation from 2009 to 2011

The Indian capital market post liberalisation underwent various reforms and deregulations which heavily attracted foreign investments particularly the portfolio investments. The Indian primary market on the other hand is an integral part of the capital market which infuses fresh capital into the system by mechanisms like Initial Public Offering (IPO). This article thus attempts to make an understanding of few major causes like IPO size and market capitalisation as major forces in attracting foreign institutional investors (FII) inflows into the Indian primary market and thereby analysing the role of FIIs into capital formation.

English

  In this paper, we declare that such objective, autonomous and exogenous certifying mechanism provides a better opportunity to test the well-established credit rating hypothesis, especially in the context of emerging markets with institutional voids. Employing a sample of 142 Indian IPOs (January 2007 to December 2012), we also experiment Ex-ante uncertainty with the efficacy of IPO (Initial Public Offerings) grading mechanism. We procure; grading decreases IPO underpricing and positively influences demand of retail investors, issue size, earnings before interest and dividend, long-term debt-equity equity ratio and profit to the book value ratio. Grading diminishes the number of share offered, a debt-equity ratio, and earnings before interest, dividend and tax, fixed to assess ratio and is having much impact on Ex- Ante uncertainty. Notwithstanding, grading does not affect subscription rate, offer timing (difference in days between offer days and listing days), firm’s age, debtors turnover ratio, creditor payment method, cash to price earnings ratio, PIPH (post issue promoter's holding), interest coverage ratio, inventory turnover ratio, market capitalization, price earnings ratio, return on capital employed and return on net worth of the IPOs. IPO grading is prominent to capture firm size, business group affiliation and firm’s quality of corporate governance. Our findings put forward that, in emerging markets, regulator’s role to signal the quality of an IPO contributes with respect to the market welfare.   Key words: Initial Public Offerings, underpricing, credit rating, ownership structure, Ex-ante uncertainty.

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

The study examines the following two interrelated research issues: (i) how the operating performance of Indian firms changes around the time firms do their Initial Public Offerings (IPOs)? and (ii) how the post-IPO performance of Indian firms is related to the changes in insiders’ ownership around their IPOs? It is found that performance of Indian firms deteriorates significantly post IPO. The panel data analysis of 306 Indian firms examined the relationship between ownership and performance. The results illustrated a curvilinear relationship between ownership and performance. Whereas the negative relationship was found for low and very high ownership level and positive relationship was found for intermediate level. This is an attention-grabbing outcome as it contrasts with earlier studies on curvilinear relationship between ownership and performance, where the negative relationship was found for intermediate level and positive relationship was found for both very low and very high ownership level.

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

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.

Underpricing of infrastructure IPOs: evidence from India

This paper explores the underpricing of initial public offerings (IPOs) made by infrastructure companies in India from 2004 to 2010, and follows Dimovski who reported that in the Australian market, infrastructure IPOs did not produce underpricing returns that were statistically significantly different to zero. The objective of this paper is to investigate the underpricing of infrastructure IPOs in the emerging market of India and to explore factors that may influence the underpricing of infrastructure IPOs in India. The results show that, on average, the underpricing returns were 25.4% and statistically significantly different to zero, while money left on the table, in aggregate is not. In contrast to Australian evidence, significant underpricing in Indian infrastructure IPOs indicates greater risk of these investments. We find that oversubscription, government ownership and issue size are significant variables in explaining underpricing in Indian infrastructure IPOs.

Studying Earnings Management in Initial Public Offerings (IPOs) and its Impact on IPO Pricing in India

Earnings Management by firms has been recognized by a stream of literature (Teoh et aI, 1998) as a major contributory factor to the short run over performance and long run under performance of Initial Public Offerings (IPOs).This paper outlines the methodology and the key research questions to be adopted for studying Earnings Management for Indian IPOs. The study tries to outline how to empirically test the relationship of the accounting concept of Earnings Management with the Finance concept of IPO under pricing. In particular it seeks to find out whether there is evidence in the Indian markets about earnings management during IPOs and if so then the impact of this phenomenon on the first day prices of the shares offered during IPOs in India.

Attributes of Companies Making IPOs in India - Some Observations

A growing volume of literature on Initial Public Offerings (IPOs) by Indian firms has sought to explain the efficiency of pricing and the post issue performance of companies that make IPOs in terms of institutional features of the securities market or certain features of the issuers. These studies pertain to different windows of IPO activity, starting with the establishment of the Securities and Exchange Board of India (SEBI) in 1992. However, no study so far has examined the evolution of the attributes of the issuer. The establishment of SEBI in its current empowered incarnation has been acknowledged to be a milestone in the evolution of the Indian securities market. This paper is based on the belief that understanding the evolution of IPOs since the establishment of SEBI may help in understanding the phenomena in the IPO market better. The paper also tries to relate the changes in the profile of the issuers to certain regulatory developments which may have been intended to influence those attributes of issuers and issuances. The observations in this paper provide useful pointers to further research which may unravel the working of the Indian IPO market better. More importantly, they may be useful in designing new securities market which could serve as alternatives to or complement the existing market mechanisms.

Examining the Performance of IPOs

This paper examines the performance of 648 initial public offerings (IPOs) listed on the Bombay Stock Exchange (BSE) from June 1992 to March 2002 over a five-year period. Voluminous research across the world suggests that IPOs unanimously witness very high returns in the short run; as opposed to it, the long-run performance of IPOs does not observe any ubiquitous pattern and this paper is an attempt to draw conclusions about the performance of IPOs in India. In order to get robust conclusions on IPO performance, the patterns of IPO performance have been analyzed for 60 months subsequent to listing. Furthermore, the study attempts to find out the factors that determine the performance of Indian IPOs.

A Tale of Two Decades (1990–2010): The Survival Profile of Indian Initial Public Offering Issuers

This article examines the survival profile of Indian initial public offering (IPO) issuers for a period of two decades (1990–2010).The authors use a multinomial logit model to determine which factors influenced the post-issue transition of IPOs in India into survivors, nonsurvivors, or targets. Empirical analysis reveals that larger IPOs in India experience a lower probability of delisting, and higher underpricing increases the probability of failure or becoming a target. They also estimate the accelerated failure time model to confirm previous results. They find that the survival time for IPOs in information technology, manufacturing, and finance is negatively affected.

Waves of Indian IPOs: Evolution and Trend

Recent trend shows that Initial Public Offerings (IPOs) has become one of the popular and dependable methods of raising cash. This paper aims at understanding the waves and pattern of Indian IPOs. It was found that most of the IPOs were from private sector companies. The industry-wise trend in IPOs showed that most of the IPOs were launched by IT sector companies. It was observed that year 1999–2000 and year 2005–06 was best in terms of investors' response whereas the period from 2001 to 2003 was worst in terms of investors' optimism. Current waves of Indian IPOs are divided into hot market IPOs and cold market IPOs. A multivariate regression model is applied to empirically analyze issuers' approach to time their issue with hot market condition. The result suggests 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.

Role of Private Equity Exit Strategy, Governance Mechanism and Regulatory Constraint on Performance of Indian IPOs

The performance of Indian initial public offerings (IPO) is influenced by the ownership structure of a firm. As many firms raise the capital in the form of private equity (PE), this work highlights the impact of governance structure of private equity firms, the decision of exit through IPO route on the performance of Indian IPO. In Indian scenario, private equity (PE) backed IPO shows insignificant role in impacting the degree of underpricing of IPO as well as IPO performance. The insignificant ownership stake held by private equity investors as a consequence of regulatory constraint as well as liquidating less ownership stake through IPO is identified as a differentiating characteristic in India. These observed results are contrary to the results reported by Lee & Wahal (2004). On the other hand it supports the grandstanding hypothesis related to private equity firms put forth by Gompers (1996). However, our results show that PE investment in business group affiliated firms’ shows significant negative impact on its long term performance. The overall performance of IPO follows ‘U’ shape curve.

After Market Pricing Performance of Initial Public Offerings (IPOs): Indian IPO Market 2002–2006

This paper is motivated by the apparent belief that IPOs are underpriced on the initial listing day and thereafter underperforms compared to the market benchmark. While evaluation of the listing day performance seems straightforward on surface, it actually invokes several complications for the subsequent performance measurement. This paper focuses on the evaluation of price performance of IPOs up to a period of 36 months including the listing day. It also examines the usefulness of IPO characteristics at the time of issue to seek an explanation for the post-issue price performance. The paper presents fresh evidence on IPO performance, i.e., short-run underpricing and long-run underperformance for 92 Indian IPOs issued during the period 2002–2006. It is reported that on an average the Indian IPOs are underpriced to the tune of 46.55 per cent on the listing day (listing day return vis-à-vis issue price) compared to the market index. Another contribution of this paper is the evaluation of the long-run post-issue price performance of Indian IPOs. The long-run performance of IPOs up to a period of 36 months are measured by using the two most promising evaluation techniques, i.e., wealth relative (WR) and buy-and-hold abnormal rate of return (BHAR), both being adjusted with market index, CNX-Nifty. Further, the results evidence that the underperformance is most pronounced during the initial year of trading, i.e., up to 12 months from the listing date followed by over�performance. To get possible explanations for long-run underperformance for Indian IPOs, factors like underpricing rate (listing day return), offer size, leverage at IPO date, ex-ante uncertainty, timing of issue, age of IPO firm, rate of subscription, promoter groups retention, and price-to-book value (as proxy for growth) are considered. Evidence is found, that initial day return, offer size, leverage at IPO date, ex-ante uncertainty, and timing of issue are statistically significant in influencing underperformance. However, there is no evidence favourable to the age of the IPO firm, rate of subscription, promoter group's retention, and price-to-book value impact on the long-run underperformance. The empirical results suggest that the investors who are investing in IPOs through direct subscription are earning a positive market-adjusted return throughout the period of study. But investors who have bought shares on the IPO listing day are earning negative returns up to 12 months from the listing date and expect to earn positive market-adjusted return thereafter. For future research, we suggest the extension of this analysis for additional explanatory variables including issue fundamental characteristics of IPO firms. The scope of the research study could even be improved by extending the time period of study prior to 2002.

Post-issue promoter groups holding, signalling and IPO underprice: evidence from Indian IPOs

This paper attempts to specify the relationship between post-issue promoter groups' retention and Initial Public Offering (IPO) underprice. We also investigate the impact of signalling and financial variables, i.e. offer size, times subscribed, age of the firm, book value, leverage, market volatility and ex-ante uncertainty along with post-issue promoter groups holding on IPO underprice. On using a sample of 92 IPOs, we find IPOs are underpriced at an average of 46.55% during 2002 to 2006. We document a positive relationship between post-issue promoter group holding and IPO underprice. Our results indicate offer size, times subscribed and post-issue promoter group holding are statistically significant in explaining underprice. We also document positive initial day return for IPOs across all industries, while manufacturing sector IPOs are less underpriced than non-manufacturing sector IPOs.

Determinants of Initial and Long-Run Performance of IPOs in Indian Stock Market

The paper investigates the possible determinants of underpricing and the long-run performance of 438 Indian initial public offerings (IPOs) listed on the Bombay Stock Exchange during June 1992 – March 2001. The mean underpricing has been found to be 99.20 per cent, which is very high if compared with the international evidence. Age of the firm, listing delay at IPO and number of times the issue is subscribed have been found to be the important determinants of underpricing. Indian IPOs do not tend to underperform in the long-run and underpricing has been primarily found to explain the long-run performance. The study, thus provides evidence of overreaction hypothesis.

Firm Financing through IPOs: A Study of Causal Variables Responsible for Under-Pricing

One major source of business financing is through Initial Public Offerings (IPOs). Historically, IPOs received high initial first day gains compared to the market performance. These gains reflect external factors and not the company's true value, thereby suggesting the under-priced IPO. The recent researches on IPOs in different markets for different industries in various countries, have focused on under-pricing and show that the under-pricing is evident in case of book-building route as well as fixed price-band offers. This study attempts to identify causal variables behind high initial gains for Indian IPOs using earlier researches and testing them over a sample of Indian IPOs to examine the influence of non-fundamental factors and signalling effects on under-pricing

Getting Off to a Good Start: The Effects of Upper Echelon Affiliations on Underwriter Prestige

The initial public offering (IPO) is one of the most critical events in the lifetime of a young firm. Prior research has shown that firms tend to have successful IPOs if they go public with the endorsement of a prestigious lead underwriter. This paper examines the antecedents to receiving endorsement by a prestigious underwriter and links this to the experience base of a firm's upper echelon. We theorize that the amount and type of upper echelon experience serve as important symbols of a young firm's legitimacy to critical outsiders. We introduce a typology of upper echelon experience that distinguishes between upper echelon upstream, horizontal, and downstream employment-based affiliations and suggest that these different types of upper echelon affiliations allay different types of endorser concerns regarding firm legitimacy, affecting the endorsement process. Further, we theorize that the relationships between upper echelon experience and investment bank prestige will be moderated by technological uncertainty. We test our assertions on a comprehensive sample of public and private biotechnology firms that were founded between 1961 and 1994 and that went public between 1979 and 1996. Analyses of the five-year career histories of the over 3,200 executives and directors that make up the upper echelons of these firms show that firms with upper echelons with affiliations with prominent downstream organizations (i.e., pharmaceutical and/or healthcare companies) and with prominent horizontal organizations (i.e., biotechnology companies) are more likely to attract the endorsement of a prestigious investment bank. We also find that the greater the range of upper echelon affiliations across the categories of upstream, horizontal, and downstream affiliations, the more prestigious the firm's lead underwriter. We also find that these latter results are moderated by technological uncertainty. The present research has implications for the study of organizational legitimacy, interorganizational endorsements, and entrepreneurship.