The aftermarket pricing performance of initial public offers: Insights from India

Purpose: The purpose of this paper is to examine the underpricing of initial public offers (IPOs), which were announced by Indian firms for the period 2007 through 2009. It is motivated by the fact that a well-developed capital market is a function of economic growth and a reflection of the financial system. Thus, this study investigates aftermarket pricing performance of IPOs during the recent global financial crisis. Methodology: This paper studies the underpricing of 133 IPOs in three groups, namely house-full collections, short-run and long-run periods. To do so, it uses event study method to observe underpricing, which is examined in various window periods. Further, industry- and year-wise offers are analyzed and interpreted. Accordingly, hypotheses are being developed and tested through a static ‘analysis of variance’. Findings: The study explores that post-listing IPOs assure positive returns in short-run, but they tend to plunge and become negative in long-run. In particular, highest returns have been observed in the first week of post-listing. Research limitations: Limitations include, the study does not compute market adjusted returns to find abnormal performance of stocks, and does not apply regression statistic to examine the factors that affect underpricing. Practical implications: Eventually, conclusions are drawn from India-International results and thus, it would add some new insights on investor perspectives (e.g. price signalling) to the existing IPOs literature, especially from Asian markets context. Originality: This paper is an original research that examines the underpricing of Indian IPOs during the recent financial crisis, particularly in three groups: house-full collections, short-run and long-run periods.