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Initial Performance of IPOs in India: Evidence from 2010-2014


Affiliations
1 L.J. Institute of Management Studies, Gujarat Technological University, India
 

In this paper, we studied listing day performance pertaining to 113 IPOs in India during January, 2010 to December, 2014, listed in National Stock Exchange(NSE) India. We found that there is, on the average, significantly positive return on the listing day. The Market Adjusted Abnormal Returns (MAAR) of all sample Initial Public Offers (IPO) companies were 7.19%. It is observed that IPOs are initially underpriced. We have applied t-test to verify the returns and mean initial return of 7.19% and proved that average returns are significantly lower and also compare to historical returns of IPO. Regression model has been used to analyse the relationship between degree of underpricing with independent variables such as issue price, issue size, issue oversubscription and market index return. The result of regression analysis shows that there was no significant relationship between the degree of underpricing and explanatory variables except oversubscription of issue. The study suggests that investors can make their investment in new issues as IPOs are underpriced in initial days.

Keywords

Market Adjusted Abnormal Returns (MAAR), Initial Public Offers (IPO), Issue Price, Issue Size, Issue Oversubscription, Underpricing.
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  • Initial Performance of IPOs in India: Evidence from 2010-2014

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Authors

Sweety Nishant Shah
L.J. Institute of Management Studies, Gujarat Technological University, India
Disha Harshadbhai Mehta
L.J. Institute of Management Studies, Gujarat Technological University, India

Abstract


In this paper, we studied listing day performance pertaining to 113 IPOs in India during January, 2010 to December, 2014, listed in National Stock Exchange(NSE) India. We found that there is, on the average, significantly positive return on the listing day. The Market Adjusted Abnormal Returns (MAAR) of all sample Initial Public Offers (IPO) companies were 7.19%. It is observed that IPOs are initially underpriced. We have applied t-test to verify the returns and mean initial return of 7.19% and proved that average returns are significantly lower and also compare to historical returns of IPO. Regression model has been used to analyse the relationship between degree of underpricing with independent variables such as issue price, issue size, issue oversubscription and market index return. The result of regression analysis shows that there was no significant relationship between the degree of underpricing and explanatory variables except oversubscription of issue. The study suggests that investors can make their investment in new issues as IPOs are underpriced in initial days.

Keywords


Market Adjusted Abnormal Returns (MAAR), Initial Public Offers (IPO), Issue Price, Issue Size, Issue Oversubscription, Underpricing.

References