Information asymmetry leads to underpricing: validation through SEM for Indian IPOs

Sheena Chhabra (School of Humanities and Social Sciences (SHSS), Thapar University, Patiala, India)
Ravi Kiran (School of Behavioral Sciences and Business Studies, Thapar University, Patiala, India)
A.N. Sah (School of Humanities and Social Sciences (SHSS), Thapar University, Patiala, India)

Program: electronic library and information systems

ISSN: 0033-0337

Publication date: 4 July 2017



The purpose of this paper is to examine the relevance of information, transparency and information efficiency in short-run performance of new issues. The current research evaluates the short-run performance of IPOs during 2005-2012, which even includes the recessionary period. The present study evaluates the impact of informational variables on first-day returns.


The short-run performance of the IPOs is measured through market adjusted excess return. A structural equation model (SEM) has been designed to identify how information influences the short-run performance of IPOs.


The results of structural model reveal that the sale of promoters’ stake and underwriters’ reputation are the major contributors towards information and are found to be highly significant statistically. The model also shows that the issue size (a component of information) is statistically insignificant at 5 per cent. The model suggests that the availability of information has negative impact on the first day returns indicating that the issuer which disclose maximum information to the public get lower returns on the listing day and hence, their issues are less underpriced.


The present study has a contribution in investment decisions for global investors, as the participation of international investors is common in IPOs of emerging markets. The findings of the study are expected to be useful to the practitioners in predicting the pricing of IPOs based on the informational variables influencing their performance.



Chhabra, S., Kiran, R. and Sah, A.N. (2017), "Information asymmetry leads to underpricing: validation through SEM for Indian IPOs", Program: electronic library and information systems, Vol. 51 No. 2, pp. 116-131.



Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

To read the full version of this content please select one of the options below

You may be able to access this content by logging in via Shibboleth, Open Athens or with your Emerald account.
To rent this content from Deepdyve, please click the button.
If you think you should have access to this content, click the button to contact our support team.