Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Disclosure of Intended Use of IPO Proceeds and Underpricing: Indian Evidence


Affiliations
1 Assistant Professor, PG Department of Economics, DAV College, Amritsar, Punjab, India
     

   Subscribe/Renew Journal


It is interesting to observe the role of various certification mechanisms that a company opts before going public to signal elitism over others. There is vast literature examining the various certification mechanisms adopted by a company going public; however, there exists scant literature examining the role of disclosure of intended use of IPO proceeds and risk factors in lowering information asymmetry and underpricing in Indian economy. An endeavor is made through current study to analyze the impact of disclosure of intended use of IPO proceeds and risk factors on underpricing of 100 companies hitting the capital market for the first time from 1 April 2010 to 31 March 2012. A multivariate regression analysis reveals no relation between disclosure of intended use of IPO proceeds and underpricing in Indian market. But the disclosure of risk factors is found to relate negatively to underpricing. It implies that stakeholders rely more on other mechanisms to interpret quality of IPO and, more specifically, Indian investors rely on recommendations of middlemen in making investment decisions.

Keywords

Underpricing, Disclosure, IPO Proceeds, Risk Factors, Indian Market.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Arnold, T., Fishe, R. P., & North, D. (2010). The effects of ambiguous information on initial and subsequent IPO returns. Financial Management, 39(4), 1497-1519.

  • Beatty, R. P. (1989). Auditor reputation and the pricing of initial public offerings. Accounting Review, 64(4), 693-709.

  • Beatty, R. P., & Ritter, J. R. (1986). Investment banking, reputation, and the underpricing of initial public offerings. Journal of Financial Economics, 15(1-2), 213-232.

  • Beatty, R. P., & Welch, I. (1996). Issuer expenses and legal liability in initial public offerings. The Journal of Law and Economics, 39(2), 545-602.

  • Benston, G. J. (1973). Required disclosure and the stock market: An evaluation of the Securities Exchange Act of 1934. The American Economic Review, 63(1), 132-155.

  • Bhalla, L., Bhatia, A., & Kaushal, V. (2012). Corporate governance and IPO underpricing. Journal of Commerce and Accounting Research. Retrieved May 07, 2020, from http://www.publishingindia.com/jcar/47/corporate-governance-and-ipo-underpricing/164/1296/

  • Bozzolan, S., & Ipino, E. (2007). Information ssymmetries and IPO underpricing: The role of voluntary disclosure of forward looking information in the prospectus. Retrieved April 20, 2013, from https://ssrn.com/abstract=999518

  • Bubna, A., & Prabhala, N. R. (2011). IPOs with and without allocation discretion: Empirical evidence. Journal of Financial Intermediation, 20(4), 530-561.

  • Bushee, B. J., & Leuz, C. (2005). Economic consequences of SEC disclosure regulation: Evidence from the OTC bulletin board. Journal of Accounting and Economics, 39(2), 233-264.

  • Carter, R. B., Dark F. H., & Singh, A. K. (1998). Underwriter reputation, initial returns, and the long-run performance of IPO stocks. The Journal of Finance, 53(1), 285-311.

  • Certo, S. T., Daily, C. M., & Dalton, D. R. (2001). Signaling firm value through board structure: An investigation of initial public offerings. Entrepreneurship Theory & Practice, 26(2), 33-50.

  • Chambers, D., & Dimson, E. (2009). IPO underpricing over the very long run. The Journal of Finance, 64(3), 1407-1443.

  • Core, J. E. (2001). A review of the empirical disclosure literature: Discussion. Journal of Accounting and Economics, 31(1), 441-456.

  • Dobler, M. (2005). How informative is risk reporting? A review of disclosure models. Munich Business Research Working Paper No. 2005-01. Retrieved November 16, 2016, from https://ssrn.com/abstract=640522 on 16/11/2016.

  • Grossman, S. J. (1981). The informational role of warranties and private disclosure about product quality. The Journal of Law and Economics, 24(3), 461-483.

  • Hanley, K. W., & Hoberg, G. (2008). Strategic disclosure and the pricing of initial public offerings. US Securities and Exchange Commission Working Paper.

  • Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1), 405-440.

  • Helwege, J., & Liang, N. (1996). Is there a pecking order? Evidence from a panel of IPO firms. Journal of Financial Economics, 40(3), 429-458.

  • Huang, F. L., Li, Y. L., Li, Y. Y., & Wang, Z. (2011, September). Initial public offering underpricing - Analysis from a risk disclosure perspective. In Electronics, Communications and Control (ICECC), 2011 International Conference on (pp. 3214-3217). IEEE.

  • Jog, V. M., & Riding, A. L. (1987). Underpricing in Canadian IPOs. Financial Analysts Journal, 43(6), 48-55.

  • Jog, V., & McConomy, B. J. (2003). Voluntary disclosure of management earnings forecasts in IPO prospectuses. Journal of Business Finance & Accounting, 30(1‐2), 125-168.

  • Kim, M., & Ritter, J. R. (1999). Valuing IPOs. Journal of Financial Economics, 53(3), 409-437.

  • Lee, P. J., Taylor, S. L., & Walter, T. S. (1996). Australian IPO pricing in the short and long run. Journal of Banking & Finance, 20(7), 1189-1210.

  • Leone, A. J., Rock, S., & Willenborg, M. (2007). Disclosure of intended use of proceeds and underpricing in initial public offerings. Journal of Accounting Research, 45(1), 111-153.

  • Mahoney, P. G., & Mei, J. (2006). Mandatory vs. contractual disclosure in securities markets: Evidence from the 1930s.

  • Sanghvi, N., & Bansal, G. (2014). Systematic risk of stocks: The return interval effect on beta. Journal of Commerce and Accounting Research. Retrieved March 26, 2020, from http://www.publishingindia.com/jcar/47/systematic-risk-of-stocks-the-return-interval-effect-on-beta/325/2372/

  • Schrand, C. M., & Verrecchia, R. E. (2005). Information disclosure and adverse selection explanations for IPO underpricing (October 2005). Retrieved April 24, 2013, from https://ssrn.com/abstract=316824

  • Shah, A. (1995). The Indian IPO market: Empirical facts. Social Science Research Network, 1-29.

  • Shi, C., Pukthuanthong, K., & Walker, T. (2006). Disclosure regulation and IPO underpricing: An international analysis. Working paper (University of California at Irvine, California) [Internet document] [created May 2006]. Retrieved from http://www.accountancy.smu.edu.sg/research/seminar/pdf/CharlesSHI_paper. pdf

  • Singh, B., & Gupta, K. (2018). Relationship between directors diversity and IPO underpricing: Evidence from India. Journal of Commerce and Accounting Research, 7(1), 30-39. Retrieved February 12, 2020, from http://www.publishingindia.com/jcar/47/relationship-between-directors-diversity-and-ipo-underpricing-evidence-from-india/671/4703/

  • Soriya, S., & Meena, A. K. (2020). Structural reviews of initial public offerings: A path ahead. Journal of Commerce and Accounting Research, 9(3). Retrieved January 12, 2020, from http://www.publishingindia.com/jcar/47/structural-reviews-of-initial-public-offerings-a-path-ahead/880/6076/

  • Spindler, J. C. (2009). IPO underpricing, disclosure, and litigation risk. USC CLEO Research Paper No. C09-9; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper; USC Law Legal Studies Paper No. 09-10. Retrieved December 13, 2015, from https://ssrn.com/abstract=1396818

  • Stigler, G. J. (1964). Public regulation of the securities markets. The Journal of Business, 37(2), 117-142.

  • Ström, N. (2006). Essays on information disclosure: Content, consequence and relevance (Doctoral dissertation, Företagsekonomiska institutionen).

  • Trueman, B. (1986). Why do managers voluntarily release earnings forecasts? Journal of Accounting and Economics, 8(1), 53-71.

  • Ul Islam, K., & Habib, M. (2016). Do macroeconomic variables impact the Indian stock market? Journal of Commerce and Accounting Research, 5(3). Retrieved April 12, 2020, from http://www.publishingindia.com/jcar/47/do-macroeconomic-variables-impact-the-indian-stock-market-/488/3520/

  • Verrecchia, R. E. (1983). Discretionary disclosure. Journal of Accounting and Economics, 5(1), 179-194.

  • Wyatt, A. (2014). Is there useful information in the ‘use of proceeds’ disclosures in IPO prospectuses? Accounting & Finance, 54(2), 625-667.


Abstract Views: 388

PDF Views: 1




  • Disclosure of Intended Use of IPO Proceeds and Underpricing: Indian Evidence

Abstract Views: 388  |  PDF Views: 1

Authors

Gagandeep Singh
Assistant Professor, PG Department of Economics, DAV College, Amritsar, Punjab, India

Abstract


It is interesting to observe the role of various certification mechanisms that a company opts before going public to signal elitism over others. There is vast literature examining the various certification mechanisms adopted by a company going public; however, there exists scant literature examining the role of disclosure of intended use of IPO proceeds and risk factors in lowering information asymmetry and underpricing in Indian economy. An endeavor is made through current study to analyze the impact of disclosure of intended use of IPO proceeds and risk factors on underpricing of 100 companies hitting the capital market for the first time from 1 April 2010 to 31 March 2012. A multivariate regression analysis reveals no relation between disclosure of intended use of IPO proceeds and underpricing in Indian market. But the disclosure of risk factors is found to relate negatively to underpricing. It implies that stakeholders rely more on other mechanisms to interpret quality of IPO and, more specifically, Indian investors rely on recommendations of middlemen in making investment decisions.

Keywords


Underpricing, Disclosure, IPO Proceeds, Risk Factors, Indian Market.

References