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Underpricing of Initial Public Offerings: The Indian Experience

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  • SAURABH GHOSH

Abstract

This paper attempts to identify the factors explaining underpricing of initial public offerings (IPOs) in an emerging economy, India, using 1,842 companies that got listed on the Bombay Stock Exchange from 1993 to 2001. It is found that uncertainty played a role in perverse underpricing in the Indian primary market. IPOs with a large issue size and those that went for seasoned offerings had less underpricing. Contrary to the international evidence, underpricing was less during the high volume (hot) period compared to the slump period in the Indian IPO market. During the hot period, new issues belonging to business groups underpriced more than their stand-alone counterparts did. Small issues belonging to private stand-alone firms had less underpricing during the hot period and did not come to the market subsequently to raise funds. Large issues belonging to the business groups, on the other hand, underpriced more and subsequently raised funds from the market. These results support the predictions of signaling theory for the IPOs listed in the Indian stock markets over the last decade.

Suggested Citation

  • Saurabh Ghosh, 2005. "Underpricing of Initial Public Offerings: The Indian Experience," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 41(6), pages 45-57, November.
    • Handle: RePEc:mes:emfitr:v:41:y:2005:i:6:p:45-57
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    Cited by:

    1. Nischay Arora & Balwinder Singh, 2024. "Do Prestigious Underwriters Shape the Performance of SME IPOs in India?," Global Business Review, International Management Institute, vol. 25(3), pages 632-655, June.
    2. Shikha Bhatia & Balwinder Singh, 2012. "Examining the Performance of IPOs," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 37(3), pages 219-251, August.
    3. Sanjay Dhamija & Ravinder Kumar Arora, 2017. "Initial and After-market Performance of SME IPOs in India," Global Business Review, International Management Institute, vol. 18(6), pages 1536-1551, December.
    4. Reddy, K. Srinivasa, 2011. "The aftermarket pricing performance of initial public offers: Insights from India," MPRA Paper 62885, University Library of Munich, Germany, revised 2013.
    5. Alberto Dreassi & Massimiliano Kaucic & Giorgio Valentinuz, 2017. "The Information Content Of Earnings Announcements In The European Insurance Market: An Event Study Analysis," Eurasian Journal of Business and Management, Eurasian Publications, vol. 5(3), pages 1-16.
    6. Joanna Lizińska & Leszek Czapiewski, 2014. "Performance of Polish IPO Firms: Size and Profitability Effect," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 53-71.
    7. Falguni H. Pandya, 2016. "After Market Pricing Performance of Initial Public Offerings (IPOs)," Jindal Journal of Business Research, , vol. 5(1), pages 1-16, June.
    8. Sanjay Dhamija & Ravinder Kumar Arora, 2017. "Determinants of Long-run Performance of Initial Public Offerings: Evidence from India," Vision, , vol. 21(1), pages 35-45, March.
    9. Mohd Rashid, Rasidah & Abdul-Rahim, Ruzita & Yong, Othman, 2014. "The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market," Economic Systems, Elsevier, vol. 38(4), pages 487-501.

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