South Asian Journal of Management

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An Assessment of the Role of IPO Grades in Improving Investor Confidence:Evidence from India


Affiliations
1 Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan , Shaheed Jeet Singh Marg, Hauz Khas, New Delhi 110016, India
2 Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan, Shaheed Jeet Singh Marg, Hauz Khas, New Delhi 110016, India
3 Department of Economics and Finance, Room No.: 6165 N - NAB, Birla Institute of Technology & Science (BITS) Pilani, Pilani Campus, Vidya Vihar, Pilani 333031, Rajasthan, India
     

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SEBI introduced mandatory grading of Initial Public Offers (IPO) in 2007 to enhance information symmetry between issuing companies and investors in the primary market, particularly for retail investors, increasing overall investor participation and ensuring pricing efficiency. However, in December 2013, SEBI scrapped mandatory grading and made it an optional exercise; this event signals that mandatory IPO grading failed to meet its objectives. This paper attempts to analyze the impact of mandatory grading of IPO in promoting investor confidence by analyzing all graded IPO offered during the mandatory grading regime (2007- 2013) using regression analysis. Results indicate that IPO grades have a significant influence on retail demand; also, high graded issues attract demand from across all investor categories. Further, high graded IPO seem to be priced efficiently as compared to others. Overall, this study suggests that this provision should have been retained, especially in the interest of retail investors.

Keywords

India Investor Confidence, Long-run Performance, Mandatory IPO Grading, Pricing Efficiency.
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  • An Assessment of the Role of IPO Grades in Improving Investor Confidence:Evidence from India

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Authors

Smita Kashiramka
Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan , Shaheed Jeet Singh Marg, Hauz Khas, New Delhi 110016, India
Nisha Mary Thomas
Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan, Shaheed Jeet Singh Marg, Hauz Khas, New Delhi 110016, India
Surendra Singh Yadav
Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan, Shaheed Jeet Singh Marg, Hauz Khas, New Delhi 110016, India
N. V. Muralidar Rao
Department of Economics and Finance, Room No.: 6165 N - NAB, Birla Institute of Technology & Science (BITS) Pilani, Pilani Campus, Vidya Vihar, Pilani 333031, Rajasthan, India

Abstract


SEBI introduced mandatory grading of Initial Public Offers (IPO) in 2007 to enhance information symmetry between issuing companies and investors in the primary market, particularly for retail investors, increasing overall investor participation and ensuring pricing efficiency. However, in December 2013, SEBI scrapped mandatory grading and made it an optional exercise; this event signals that mandatory IPO grading failed to meet its objectives. This paper attempts to analyze the impact of mandatory grading of IPO in promoting investor confidence by analyzing all graded IPO offered during the mandatory grading regime (2007- 2013) using regression analysis. Results indicate that IPO grades have a significant influence on retail demand; also, high graded issues attract demand from across all investor categories. Further, high graded IPO seem to be priced efficiently as compared to others. Overall, this study suggests that this provision should have been retained, especially in the interest of retail investors.

Keywords


India Investor Confidence, Long-run Performance, Mandatory IPO Grading, Pricing Efficiency.

References