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Article
Publication date: 5 October 2015

Yogesh Maheshwari and Khushbu Agrawal

This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates…

Abstract

Purpose

This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates whether earnings management significantly differs in the pre-IPO grading regime and post-IPO grading regime. Further, it examines whether earnings management significantly differs between high-graded and low-graded IPOs.

Design/methodology/approach

The cross-sectional modified Jones model is used to obtain the discretionary accruals, a proxy for earnings management. The impact of IPO grading on earnings management is assessed using multiple regression analysis.

Findings

Earnings management is significantly lower in graded IPOs as compared to the ones that are not graded. Further, among the graded IPOs, the high-graded IPOs exhibit lower earnings management as compared to the low-graded IPOs. The findings are robust to the use of an alternative measure for discretionary accruals.

Originality/value

IPO grading in India is a unique certification mechanism, introduced for the first time in any market. This paper establishes the efficacy of this mandatory certification mechanism in reducing earnings management. The findings could be valuable to issuer companies, investors and market regulators.

Details

Journal of Financial Reporting and Accounting, vol. 13 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 4 July 2017

Sheena Chhabra, Ravi Kiran and A.N. Sah

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

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Article
Publication date: 7 November 2017

Sheena Chhabra, Ravi Kiran, A.N. Sah and Vikas Sharma

The purpose of this paper is to focus on examining the first day returns of initial public offerings (IPOs) and the role of information on their performance. The study…

Abstract

Purpose

The purpose of this paper is to focus on examining the first day returns of initial public offerings (IPOs) and the role of information on their performance. The study tries to optimize the returns of the new issues during 2005-2012 with risk as a constraint.

Design/methodology/approach

The initial returns are measured through the market-adjusted excess return and the risk associated with the new issue is measured through underwriters’ reputation. The returns have been optimized through a mixed integer linear problem using the Maple software.

Findings

The previous studies show that various informational variables affect the listing day returns significantly. The results of the present study indicate that the mean of initial returns for IPOs during 2005-2012 is 18.03 and the mean risk for these issues is 0.46. The findings also suggest that the optimal returns are obtained in the pre-recession era (2005-2008) and the value for the same is 50.02 percent.

Originality/value

The current study contributes in the investment decisions for global investors as every investor wants to maximize his/her returns. The optimal returns with risk as a constraint will help the investors in improving their investment decision as a prudent investor does not aim solely at maximizing the expected return of an investment but is also interested in optimizing with the minimization of risk.

Details

Program, vol. 51 no. 4
Type: Research Article
ISSN: 0033-0337

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Article
Publication date: 13 January 2020

Sheeja Sivaprasad and Roshni Dadhaniya

India is one of the largest IPO markets in the world. However, IPO research in the developing world is limited. The purpose of this paper is to test the performance of…

Abstract

Purpose

India is one of the largest IPO markets in the world. However, IPO research in the developing world is limited. The purpose of this paper is to test the performance of Indian IPOs based on sponsored vs non-sponsored issues. The authors classify the IPO sample into venture capital (VC) and private equity (PE) sponsored issues and non-sponsored ones and include key operating characteristics as performance predictors.

Design/methodology/approach

The dependent variable is the buy-and-hold abnormal returns. The study uses key operating characteristics such as market capitalization, net sales, earnings before interest, taxes, depreciation and amortization, depreciation and amortization, price-to-book, asset turnover and leverage. A cross-sectional analysis is applied to test the long-run performance.

Findings

Sponsored IPO issues convey favourable information to investors about future earnings and prospects of the firm. The findings indicate that sponsored issues and, in particular PE sponsored issues are perceived by investors as having a positive impact on the operational performance of firms that the PE firms are involved in relative to the constituents of the index and this superior operational performance over time also leads to relatively better performing share prices. There are significant differences in terms of market size, industry classification and key operating characteristics across the three groups of issues.

Research limitations/implications

This study has had to deal with much smaller samples of PE and VC when compared to similar studies conducted in the developed markets such as the UK and the USA. Further robustness tests on the market performance using factor models posed a problem due to limitation of the availability of these factors.

Practical implications

For the capital markets investors and policy makers, this research demonstrates the increasingly important role that PE and VC funds play in the investment landscape in India. It exhibits the increasing investor confidence in the Indian capital markets.

Originality/value

Using a sample of Indian IPOs comprising VC sponsored and PE sponsored issues, this study analyses the performance of Indian IPOs in an emerging market setting. This study, thus, contributes to the limited IPO research undertaken in developing markets.

Details

Journal of Accounting in Emerging Economies, vol. 10 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 17 May 2021

Abhishek Kumar and Seshadev Sahoo

Anchor investor (AI) regulation was introduced in 2009 by the Indian market regulator Securities and Exchange Board of India to facilitate the price discovery process…

Abstract

Purpose

Anchor investor (AI) regulation was introduced in 2009 by the Indian market regulator Securities and Exchange Board of India to facilitate the price discovery process during the book-building mechanism. This study aims to examine the aftermarket pricing performance of initial public offering (IPO) firms over the long-run period of up to 36 months after the listing date in the anchor investor regime.

Design/methodology/approach

The post-issue performance of 129 Indian IPOs issued from 2009 to 2014 is studied by using buy and hold abnormal returns, cumulative abnormal returns and wealth relatives approaches. This study presents the aftermarket performance indicators of Indian IPOs along with the comparative analysis between anchor-backed and non-anchor-backed IPO categories. Using multiple regression analysis, this study identifies the firm-level variables and issue characteristics that can explain long-term IPO performance.

Findings

This study reports that Indian IPOs continue to underperform in the long run in the anchor regulation era as well. However, anchor-backed IPOs are reported to underperform lesser than the IPOs not backed by anchor investment. Additionally, this study documents that the variables, i.e. offer size, grade, post-issue promoter holding and IPOs issued during hot IPO periods, are significant in explaining the 36-month aftermarket performance.

Originality/value

This study investigates the long-run aftermarket pricing performance of anchor affiliated IPOs in the Indian market context. Thus, it contributes to the limited primary markets’ research from emerging economies. Further, the results provide fresh evidence reaffirming the credibility of AI as an institutional investor for attestation of quality of the issues.

Details

Pacific Accounting Review, vol. 33 no. 3
Type: Research Article
ISSN: 0114-0582

Keywords

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Article
Publication date: 10 June 2019

Amanpreet Kaur and Balwinder Singh

The purpose of this paper is to examine the relationship between corporate reputation and initial public offering (IPO) underpricing for a sample of 269 IPOs hitting the…

Abstract

Purpose

The purpose of this paper is to examine the relationship between corporate reputation and initial public offering (IPO) underpricing for a sample of 269 IPOs hitting the Indian capital market for the first time during the period ranging from April 1, 2007 to November 8, 2016.

Design/methodology/approach

The study is based on secondary data (of 269 Indian companies going public) obtained from websites of capital market, Chittorgarh and Securities and Exchange Board of India (from where prospectus of each company was downloaded individually to extract data on financial variables). The study devises the technique of multivariate regression analysis to arrive at the results.

Findings

The results of the study reveal that corporate reputation serves as a signal to naive investors that assures them of issuer company’s credibility, resulting in lower underpricing. In addition to it, the study also observes the level of gender diversity on Indian boards. It is disappointing to notice low level of female representation on Indian boards and the improvement if any made in the number of female directors on Indian boards is due to provisions of new companies’ act, 2013 that mandates at least one women director on the board of every listed company. Thus, females do not constitute a critical mass on Indian boards.

Research limitations/implications

The current study scrutinizes the impact of corporate reputation on IPO underpricing only. Furthermore, the study analyzes the underpricing of only book built IPOs. Incorporating both book built and fixed price IPOs could have provided better insights into the issue.

Practical implications

The study outlines significant implications for managers of issuer company to portray company’s own reputation as a signal instead of showcasing borrowed reputation of external agents at the crucial juncture of going public.

Originality/value

Many signals portraying quality of the offering are sent by issuer company in public arena to make IPO launch a successful event. Among many such signals like underwriting reputation, auditor reputation, director’s and CEO’s reputation, the corporate audience has started giving more impetus to issuer company’s own reputation. Thus, financial academia witnessed a paradigm shift from external agents reputation to internal agent’s reputation and now the loci of interest has shifted to company’s own reputation. Giving emphasis to corporate reputation seems more relevant in emerging economies like India where naive investors rely on their own judgments while making investment decision who take clue from various signals to infer quality of the offer. It is momentous to observe whether reputation of the company acts as a conspicuous signal to decipher IPO quality. Furthermore, there hardly exists any empirical research directly examining the impact of corporate reputation on IPO underpricing in the Indian context. Hence, the present study is a modest attempt to fill this gap in literature.

Details

Asia-Pacific Journal of Business Administration, vol. 11 no. 2
Type: Research Article
ISSN: 1757-4323

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Article
Publication date: 25 November 2019

Vikas Gupta, Shveta Singh and Surendra S. Yadav

The unique regulatory design of India provides us with the opportunity to disaggregate traditional initial public offering (IPO) underpricing into three categories…

Abstract

Purpose

The unique regulatory design of India provides us with the opportunity to disaggregate traditional initial public offering (IPO) underpricing into three categories: voluntary, pre-market and post-market. The presence of anchor investors in India makes it a compelling case to study. These individuals were introduced to bring transparency in the book building process, but their impact on pre-market and post-market underpricing was not foreseen. Therefore, the purpose of this paper is to evaluate the impact of anchor investors on the IPO underpricing after disaggregation and on the long-run performance of an IPO.

Design/methodology/approach

A sample covering 232 IPOs from a period of 2009–2018 is included. The empirical analysis explores the impact of various firm-specific as well as market-specific variables on IPO underpricing. The financial data for the empirical analysis are extracted from Prime database and websites of National Stock Exchange and Bombay Stock Exchange. To deal with the outliers effectively, this paper deploys “robust-regression.”

Findings

The study finds that investor’s subscription rate and voluntary underpricing impacts the pre-market but do not have any impact on the post-market while the age of the firm has a different impact on both the markets and the number of anchor investors have the same impact in both markets. Anchor investors’ participation increases the pre-market as well as post-market underpricing. Lastly, the long-term performance of IPOs backed by the anchor investors is high relative to the IPOs not subscribed to by the anchor investors.

Originality/value

This paper is believed to be the first attempt to study the impact of anchor investors on the disaggregated IPO underpricing. The findings of this study will have a great insight for the investors.

Details

Journal of Advances in Management Research, vol. 17 no. 3
Type: Research Article
ISSN: 0972-7981

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Article
Publication date: 3 May 2018

Kavita Wadhwa and Sudhakara Reddy Syamala

The purpose of this paper is to study the reallocation of initial public offering (IPO) shares to retail investors, non-institutional buyers (NIBs) and qualified…

Abstract

Purpose

The purpose of this paper is to study the reallocation of initial public offering (IPO) shares to retail investors, non-institutional buyers (NIBs) and qualified institutional buyers (QIBs). The authors examine how the reallocation process is related to the pricing decision of the underwriter. The authors also examine the long-run performance of the IPOs classified on the basis of the highest reallocation by retail investors, NIBs and QIBs.

Design/methodology/approach

The authors use regression analysis as well as 2SLS and three-stage least squares models to test the hypotheses. For long-run performance analysis, the authors adopt Carhart’s (1997) four-factor model.

Findings

First, the authors provide evidence that the reallocation of IPO shares for retail investors, NIBs and QIBs is frequent. Second, all three categories of investors are treated differently in the reallocation of underpriced shares. Third, the authors find that the reallocation and pricing strategies are interdependent and both the strategies are used by the underwriter to reward and favor retail investors for showing high level of demand. The authors find that in India, underwriters reward retail investors. Lastly, even though underwriters favor retail investors for reallocation, the authors find that IPOs which receive highest reallocation to retail investors perform poorly in the long run.

Originality/value

This paper is the first paper to show evidence of reallocation of IPO shares by underwriters for an emerging market. The paper is different from other papers as the regulatory regime present in the Indian markets is different from other markets.

Details

International Journal of Managerial Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 30 August 2020

Nischay Arora and Balwinder Singh

The study aims to measure the subscription level and examine the determinants of oversubscription of small and medium enterprise (SME) initial public offerings (IPOs) in India.

Abstract

Purpose

The study aims to measure the subscription level and examine the determinants of oversubscription of small and medium enterprise (SME) initial public offerings (IPOs) in India.

Design/methodology/approach

The study employs cross sectional data to analyze 403 SME IPOs issued from Feb 2012 to May 2018 and listed on Bombay Stock Exchange's small and medium enterprise (BSE SME) platform and National Stock Exchange (NSE) EMERGE to investigate the determinants of oversubscription of SME IPOs. Hence, the study makes use of ordinary least square regression and quantile regression to test the hypotheses formulated for the determinants of oversubscription.

Findings

The main findings unveil that while issue price, pricing mechanism, listing delay negatively influence oversubscription; firm size, underwriter reputation, hot market and underpricing have been divulged to positively influence oversubscription. However, issue size emerged out to be significant in quantile regression at 25th, 50th and 75th quantiles.

Research limitations/implications

The present study is confined to limited number of variables in understanding the factors impacting oversubscription. Future studies could include macroeconomic variables like gross domestic product (GDP), inflation rate, industry specific variable, i.e. technology/nontechnology industry, financial/nonfinancial industry for better understanding. Cross country analysis is suggested in future studies to validate the findings of current study. Future studies are advised to conduct the study examining the factors affecting oversubscription in light of COVID-19 pandemic.

Practical implications

The findings of the present study offer implications to academicians, investors, investment advisors and regulators. It provides useful insights to researchers by listing the factors that contribute to variation in subscription levels in emerging economy like India thereby, paving the way for future researches in SME IPOs in countries with different institutional settings. For investors, the study provides additional and novel information useful for IPO valuation and informed investment decisions. In addition, the findings put investment advisors in better place to guide potential investors regarding investment in good quality SME stocks (i.e. highly subscribed stocks) in more informative manner. Last but not the least, as this study would assist the regulators in handling future IPOs in a way that augments the chances of success of SME IPOs.

Originality/value

This study is a novel contribution in widening the IPO literature by examining the relationship between pre-IPO firm actions like issue price, pricing mechanism, issue size, firm size, listing delay, underwriter reputation, hot market, underpricing and oversubscription in unexplored settings of Indian SME IPOs.

Details

Asia-Pacific Journal of Business Administration, vol. 12 no. 3/4
Type: Research Article
ISSN: 1757-4323

Keywords

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Article
Publication date: 5 March 2020

Waqas Mehmood, Rasidah Mohd-Rashid and Abd Halim Ahmad

The purpose of this paper is to examine the effects of pricing mechanism on initial public offerings (IPOs) oversubscription in Pakistan.

Abstract

Purpose

The purpose of this paper is to examine the effects of pricing mechanism on initial public offerings (IPOs) oversubscription in Pakistan.

Design/methodology/approach

This study used cross-sectional data to analyse 85 listed IPOs on the Pakistan stock exchange during the period of 2000-2017 to assess hypotheses related to influential determinants of IPO oversubscription. Accordingly, ordinary least square, robust regression and quantile regression approaches were applied in this study to evaluate the factors that influenced oversubscription.

Findings

The outcome displayed pricing mechanism is negatively significant with an oversubscription of IPOs. This indicates firms using the fixed-price mechanism signalled higher information asymmetry and uncertainty in their value. Thus, investors are aware that they will be offset with underpricing, and it is expected the demand will be higher for the particular IPOs.

Research limitations/implications

This study is entirely focused on the available information of prospectus that should not be ignored by potential investors at the time of subscription of IPO. Therefore, the study contributes to extending the available literature in signalling theory whereby issuers should consider using the book-building pricing mechanism in enhancing the efficiency of the IPO offer price during the listing.

Originality/value

This paper provides evidence for the determinants of the IPO oversubscription.

Details

Pacific Accounting Review, vol. 32 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

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