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Does Cap Size and Pricing of Issues Influence Wealth Creation of Indian Initial Public Offering Investors? - An Empirical Investigation


Affiliations
1 Research Scholar, Department of Commerce and Management Studies, University of Calicut, India
2 Pro-Vice Chancellor, University of Calicut, Kerala, India
     

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Companies tap capital markets to woo investors, but do returns stand the test of time and provide value for its initial investors? This gives rise to a long-standing debate on IPO pricing and performance. The paper examines if market cap size impacts listing, short and long run scrip performance. Dataset comprises of 216 companies listed at National Stock Exchange (NSE)from 2006-15. Whether final offer price from the provided price range is an effective predictor of initial and successive returns and does the listing gains offered by underpriced stocks continue in the short run and long run is analyzed. Results reveal that higher cap size fails to offer differential listing returns. It gains relevance a month post listing and its effect is witnessed till return analysis period, i.e. 3 years. Irrespective of cap size, stock sunder-perform the benchmark market index except on listing day. Issue price finalized from the price band through book building influences only listing day return. Extent of positive correlation between listing day and future returns goes on weakening before turning negative by first year.

Keywords

Initial Public Offerings (IPO), Market Capitalization, Underpricing, Price Range, Market Adjusted Excess Return.
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  • Does Cap Size and Pricing of Issues Influence Wealth Creation of Indian Initial Public Offering Investors? - An Empirical Investigation

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Authors

Sujata Shankaran
Research Scholar, Department of Commerce and Management Studies, University of Calicut, India
P. Mohan
Pro-Vice Chancellor, University of Calicut, Kerala, India

Abstract


Companies tap capital markets to woo investors, but do returns stand the test of time and provide value for its initial investors? This gives rise to a long-standing debate on IPO pricing and performance. The paper examines if market cap size impacts listing, short and long run scrip performance. Dataset comprises of 216 companies listed at National Stock Exchange (NSE)from 2006-15. Whether final offer price from the provided price range is an effective predictor of initial and successive returns and does the listing gains offered by underpriced stocks continue in the short run and long run is analyzed. Results reveal that higher cap size fails to offer differential listing returns. It gains relevance a month post listing and its effect is witnessed till return analysis period, i.e. 3 years. Irrespective of cap size, stock sunder-perform the benchmark market index except on listing day. Issue price finalized from the price band through book building influences only listing day return. Extent of positive correlation between listing day and future returns goes on weakening before turning negative by first year.

Keywords


Initial Public Offerings (IPO), Market Capitalization, Underpricing, Price Range, Market Adjusted Excess Return.

References