South Asian Journal of Management

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Impact of Organizational Slack on IPO Valuation:A Study of Indian Firms


Affiliations
1 FMS-WISDOM, Banasthali Vidyapith, Niwai-Jodhpuriya Road, Vanasthali 304022, Rajasthan, India
2 Department of Management, Rajiv Gandhi University, Rono Hills, Doimukh 791112, Arunachal Pradesh, India
3 Xavier Labor Relations Institute (XLRI), CH Area East, Jamshedpur 831001, Jharkhand, India
     

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This paper highlights the role of organizational slack on IPO valuation in Indian firms. The paper posits two types of slack—financial slack and top management team slack as drivers of IPO performance. Financial slack is measured in terms of cash reserve and working capital, top management team slack is measured in terms of expertise in a particular industry. The main theme presented in this study is how firms must balance slack resources at an optimal level so that maximum IPO valuation can be realized. The paper tested the hypotheses with the data collected from multiple industries by categorizing firm’s using National Industrial Code (NIC) for those firms that have undergone IPO process during the year 2000 to 2015. The study indicates significant positive implications for potential investors that slack resources can act as viable signals for assessing the quality of the IPO.

Keywords

Financial Slack, Initial Public Offering (IPO), Organization Performance, Top Management Team Slack.
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  • Impact of Organizational Slack on IPO Valuation:A Study of Indian Firms

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Authors

Ameet Kumar Banerjee
FMS-WISDOM, Banasthali Vidyapith, Niwai-Jodhpuriya Road, Vanasthali 304022, Rajasthan, India
Gautam Huidrom
Department of Management, Rajiv Gandhi University, Rono Hills, Doimukh 791112, Arunachal Pradesh, India
P. C. Padhan
Xavier Labor Relations Institute (XLRI), CH Area East, Jamshedpur 831001, Jharkhand, India

Abstract


This paper highlights the role of organizational slack on IPO valuation in Indian firms. The paper posits two types of slack—financial slack and top management team slack as drivers of IPO performance. Financial slack is measured in terms of cash reserve and working capital, top management team slack is measured in terms of expertise in a particular industry. The main theme presented in this study is how firms must balance slack resources at an optimal level so that maximum IPO valuation can be realized. The paper tested the hypotheses with the data collected from multiple industries by categorizing firm’s using National Industrial Code (NIC) for those firms that have undergone IPO process during the year 2000 to 2015. The study indicates significant positive implications for potential investors that slack resources can act as viable signals for assessing the quality of the IPO.

Keywords


Financial Slack, Initial Public Offering (IPO), Organization Performance, Top Management Team Slack.

References