IDEAS home Printed from https://ideas.repec.org/a/sae/fbbsrw/v9y2020i4p309-318.html
   My bibliography  Save this article

Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled

Author

Listed:
  • Amit Kumar Singh
  • Srishti Jain

Abstract

This article examines the performance of initial public offerings (IPOs) issued by the economic sectors in India. It analyses the level of underpricing measured by market adjusted initial return (MAIR), short-run performance measured by market-adjusted abnormal return (MAAR) and long-run performance measured by 3-year buy and hold abnormal return (BHAR) methodology relative to Sensex and Nifty for 40 IPOs approaching the capital market during the period 2006–2016. The selection of IPOs is based on the foreign direct investment (FDI) limit of USD 3,000 million in each economic sector, that is, primary sector, secondary sector and tertiary sector. The long-run analysis is done at the end of the first year, the second year and the third year. It is found using the ordinary least square (OLS) regression that variables like age of the issuing firm and volume traded on the first day of listing have a positive relation with initial returns, while offer size of the IPO has a negative relation with the initial return. Further, this study also finds out that the secondary sector performs poorly in the long run relative to the primary and tertiary sectors. This study can be of importance to investors for assessing different sectors before investing.

Suggested Citation

  • Amit Kumar Singh & Srishti Jain, 2020. "Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled," FIIB Business Review, , vol. 9(4), pages 309-318, December.
    • Handle: RePEc:sae:fbbsrw:v:9:y:2020:i:4:p:309-318
    DOI: 10.1177/2319714520973849
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/2319714520973849
    Download Restriction: no
    File URL: https://libkey.io/10.1177/2319714520973849?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    2. Jain, Bharat A & Kini, Omesh, 1994. "The Post-Issue Operating Performance of IPO Firms," Journal of Finance, American Finance Association, vol. 49(5), pages 1699-1726, December.
    3. Tim Loughran & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," The Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 413-444, March.
    4. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
    5. Krishnan, C. N. V. & Ivanov, Vladimir I. & Masulis, Ronald W. & Singh, Ajai K., 2011. "Venture Capital Reputation, Post-IPO Performance, and Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(5), pages 1295-1333, October.
    6. Iqbal Thonse Hawaldar & K.R. Naveen Kumar & T. Mallikarjunappa, 2018. "Pricing and performance of IPOs: Evidence from Indian stock market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1420350-142, January.
    7. Maria Hossain Sochi & Raisul Islam, 2018. "What Impacts IPO Underpricing? Evidence from Dhaka Stock Exchange," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(3), pages 1-88, February.
    8. Saurabh Ghosh, 2005. "The post-offering performance of IPOs in the Indian banking industry," Applied Economics Letters, Taylor & Francis Journals, vol. 12(2), pages 89-94.
    9. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
    10. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    11. Philip D. Drake & Michael R. Vetsuypens, 1993. "IPO Underpricing and Insurance Against Legal Liability," Financial Management, Financial Management Association, vol. 22(1), Spring.
    12. Rajan, Raghuram & Servaes, Henri, 1997. "Analyst Following of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 52(2), pages 507-529, June.
    13. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
    14. Laurie Krigman & Wayne H. Shaw & Kent L. Womack, 1999. "The Persistence of IPO Mispricing and the Predictive Power of Flipping," Journal of Finance, American Finance Association, vol. 54(3), pages 1015-1044, June.
    15. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    16. Loughran, Tim & Ritter, Jay R, 1995. "The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    17. repec:bla:jfinan:v:53:y:1998:i:1:p:285-311 is not listed on IDEAS
    18. Cécile Carpentier & Jean-Marc Suret, 2018. "Three Decades of IPO Markets in Canada: Evolution, Risk and Return," CIRANO Working Papers 2018s-04, CIRANO.
    19. Banerjee Rachna, 2009. "Book-Building Mechanism in India: The Built-in Inefficiencies," Advances In Management, Advances in Management, vol. 2(11), November.
    20. Cécile Carpentier & Jean‐Marc Suret, 2018. "Three Decades of IPO Markets in Canada: Evolution, Risk and Return," Accounting Perspectives, John Wiley & Sons, vol. 17(1), pages 123-161, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "IPO Pricing and the Relative Importance of Investor Sentiment: Evidence from Germany," Discussion Papers 26, University of Bamberg, Chair of Finance.
    2. Josef Schuster, 2003. "The Cross-Section of European IPO Returns," FMG Discussion Papers dp460, Financial Markets Group.
    3. Hahl, Teemu & Vähämaa, Sami & Äijö, Janne, 2014. "Value versus growth in IPOs: New evidence from Finland," Research in International Business and Finance, Elsevier, vol. 31(C), pages 17-31.
    4. Otchere, Isaac & Owusu-Antwi, George & Mohsni, Sana, 2013. "Why are stock exchange IPOs so underpriced and yet outperform in the long run?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 76-98.
    5. Benson, David F. & Brau, James C. & Cicon, James & Ferris, Stephen P., 2015. "Strategically camouflaged corporate governance in IPOs: Entrepreneurial masking and impression management," Journal of Business Venturing, Elsevier, vol. 30(6), pages 839-864.
    6. Gounopoulos, Dimitrios & Kallias, Konstantinos & Newton, David & Tzeremes, Nickolaos, 2016. "Political connections and IPO underpricing: An efficiency problem," MPRA Paper 69427, University Library of Munich, Germany.
    7. Patrick Sentis, 2009. "Merging Activity as a Rational Explanation for the Long-Run Underperformance of IPO," Multinational Finance Journal, Multinational Finance Journal, vol. 13(1-2), pages 75-102, March-Jun.
    8. David Williams & W. Duncan & Peter Ginter, 2010. "Testing a model of signals in the IPO offer process," Small Business Economics, Springer, vol. 34(4), pages 445-463, May.
    9. Schuster, Josef Anton, 2003. "The cross-section of European IPO returns," LSE Research Online Documents on Economics 24859, London School of Economics and Political Science, LSE Library.
    10. Datta, Sudip & Gruskin, Mark & Iskandar-Datta, Mai, 2015. "On post-IPO stock price performance: A comparative analysis of RLBOs and IPOs," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 187-203.
    11. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    12. Paul B. McGuinness, 2016. "Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 291-333, February.
    13. Alexander Ljungqvist & Vikram Nanda & Rajdeep Singh, 2006. "Hot Markets, Investor Sentiment, and IPO Pricing," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1667-1702, July.
    14. Jean Helwege & J. Nellie Liang, 2003. "Initial public offerings in hot and cold markets," Finance and Economics Discussion Series 2003-04, Board of Governors of the Federal Reserve System (U.S.).
    15. Goergen, Marc & Gounopoulos, Dimitrios & Koutroumpis, Panagiotis, 2021. "Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs," Journal of Corporate Finance, Elsevier, vol. 67(C).
    16. Agathee, Ushad Subadar & Sannassee, Raja Vinesh & Brooks, Chris, 2012. "The underpricing of IPOs on the Stock Exchange of Mauritius," Research in International Business and Finance, Elsevier, vol. 26(2), pages 281-303.
    17. Natalia Matanova & Tanja Steigner & Bingsheng Yi & Qiancheng Zheng, 2019. "Going concern opinions and IPO pricing accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 195-238, July.
    18. Reber, Beat, 2017. "Does mispricing, liquidity or third-party certification contribute to IPO downside risk?," International Review of Financial Analysis, Elsevier, vol. 51(C), pages 25-53.
    19. Takahiro Endo & Nidhi Srinivas & Yuki Tsuboyama, 2017. "The Role of Meta-organising in Legitimacy Recovery: The Case of Frozen Food Category in Japan," Discussion Paper Series DP2017-10, Research Institute for Economics & Business Administration, Kobe University.
    20. Saade, Samer, 2015. "Investor sentiment and the underperformance of technology firms initial public offerings," Research in International Business and Finance, Elsevier, vol. 34(C), pages 205-232.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:fbbsrw:v:9:y:2020:i:4:p:309-318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.