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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 promotersstake 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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Case study
Publication date: 31 March 2016

Sidharth Sinha

In February 2015, Suzlon had just completed its financial and asset restructuring, following financial default after rapid growth through debt financed acquisitions in the…

Abstract

In February 2015, Suzlon had just completed its financial and asset restructuring, following financial default after rapid growth through debt financed acquisitions in the financial boom ending in 2008. The restructuring resulted in a significant decrease in the promoter's equity stake. Suzlon now has to decide how to respond to an offer by the DilipSanghvi Group, promoters of Sun Pharma, to acquire a large equity stake in Suzlon for Rs. 1,800 crore. If Suzlon were to accept the offer then both the existing promoters and the DilipSanghvigroup would have the same stake of about 22% each. The case will help students examine the need to align financing and business strategy on the same plane. It will also help them understand details about restructuring of financial and business strategy in the face of financial distress.

Details

Indian Institute of Management Ahmedabad, vol. no.
Type: Case Study
ISSN: 2633-3260
Published by: Indian Institute of Management Ahmedabad

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Article
Publication date: 3 November 2020

Supriya Katti, Naval Verma, B.V. Phani and Chinmoy Ghosh

This study identifies the factors responsible for obtaining price premium on privately placed equity in a developing market.

Abstract

Purpose

This study identifies the factors responsible for obtaining price premium on privately placed equity in a developing market.

Design/methodology/approach

We examine a unique data set of a special case of private placement of equity, Qualified Institutional Placement (QIP) in India purchased at a premium. The study analyzed 188 equity issues offered between September 2006 and December 2014. On average, we find that QIP issues received a price premium of 4.38%. The study employed binary probit and ordinary least square regression models to analyze the probability and magnitude of the premium.

Findings

The study attributes the price premium of QIP to certification effect through group affiliation, signaling through promoters' ownership and monitoring effect through existing institutional investors. These factors influence the probability of premium for QIP issues. However, group affiliation and institutional ownership do not significantly influence the magnitude of the premium.

Originality/value

The private placement of equity is usually offered at a discount. Our findings contribute to the existing literature by evaluating the premium obtained on private placement as a unique scenario in emerging market supported through certification hypothesis, monitoring hypothesis and signaling.

Details

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

Keywords

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Book part
Publication date: 30 November 2020

Kamal Ghosh Ray

A corporate takeover (with major stake in equity) gives the acquirer the right to appoint majority of directors in the target’s board to control its management and policy…

Abstract

A corporate takeover (with major stake in equity) gives the acquirer the right to appoint majority of directors in the target’s board to control its management and policy decisions. When such acquisition is unsolicited and unwelcome, it becomes a “hostile takeover.” In such cases, the acquirer is said to be a “raider” and the raider’s management team may act under the influence of “hubris” implying that they seek to acquire the target for their own personal motives ignoring pure economic gains for the owners of both the companies. The hostile bidder makes all possible efforts to justify the takeover by paying handsome premium over the target’s fairly valued share price. In a hostile takeover, the target management or target promoters resist and fight tooth and nail against the raider to convey to the world that the bidder’s acts are not in the best interest of all their stakeholders. Any unsolicited and hostile takeover offer is generally viewed as oppression, domination or coercion by the bidding company against the target and its management. In a hostile bid, the existing target management always believes that whatever they do is in best interest of everyone. They feel complacent and assume that their standards of corporate governance are of highest order. Therefore, they are unwilling to succumb to the aggression and hostility of another corporate entity for takeover. The “so-called” victimized target resorts to all means to gain sympathy from peers, press, common shareholders, employees and general public. In today’s regulated market for corporate control, an intelligent hostile bidder would probably not acquire a business unless it has good strategic or financial reasons to do so. Hence, “stewardship” on the part of bidder’s management is very important in case of any hostile takeover. This chapter derives motivation from a three-and-half-decade-old abortive hostile takeover bid in India by Caparo Group of the UK and also the recently completed hostile takeover in India of a famous mid-sized information technology company, Mindtree by Larsen & Toubro, a major conglomerate. This research aims at developing a distinctive model to demonstrate that unsolicited hostile takeover may not be a good mechanism for a successful business combination.

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Case study
Publication date: 15 November 2019

Sudhir Naib and Swati Singh

The case explores information technology (IT) company Mindtree’s journey of 20 years from the time it was founded in 1999 to be different from others, and how it became a…

Abstract

Learning outcomes

The case explores information technology (IT) company Mindtree’s journey of 20 years from the time it was founded in 1999 to be different from others, and how it became a target for acquisition by an Indian diversified conglomerate in 2019. It offers insights into developing organizational culture and values in an organization, threats faced by a company when promoters dilute their shareholding, and the strategies followed by the acquirer and the target firm. It also deals with the challenges in the acquisition of a knowledge service digital firm. After working through the case and assignment questions, students will be able to: identify the circumstances under which a company can become a target for hostile takeover; describe motivations of the acquirer firm in an acquisition; distinguish between acquisition and hostile takeover, and discuss salient features of Securities and Exchange Board of India (substantial acquisition of shares and takeover) regulations, 2011; list the defenses a target firm can adopt to ward off hostile acquirer; explore strategies followed by acquirer and target firms; analyze important ingredients of organization culture, and importance of cultural congruence in an acquisition; and discuss challenges faced by an acquirer in India, namely, legal, retention of clients and key people in the target firm particularly in hostile environment.

Case overview/synopsis

The case explores how ten IT professionals founded mid-tier IT services company Mindtree in 1999 in Bengaluru, India (home to Infosys and Wipro) to be different from others – by inserting themselves at a higher level in the value chain, being philanthropic as a part of broader business strategy to attract a certain kind of employee and customer. It developed a culture of equality, consideration and respect. Its attrition rate of 12 to 13 per cent was significantly lower than the Industries. Mindtree crossed annual revenue of US$1bn for FY 2019 and was growing at twice the industry’s growth rate. The most attractive part was that its proportion of revenue from digital services was about 50 per cent as compared to 25-35 per cent of other services vendors. With time, the share of promoters/founders declined and increased one investor’s shareholding of V. G. Siddhartha and his related entities. In early March 2019, the promotersstake was 13.32 per cent while Siddhartha had 20.32 per cent. Larsen and Toubro (L&T) one of India’s conglomerate entered into a share purchase agreement on March 18, 2019 with Siddhartha to acquire his 20.32 per cent stake. Immediately, L&T asked its broker to purchase up to 15 per cent of share capital of Mindtree at a price not exceeding INR 980 per share (each share of face value INR 10). This would trigger an open offer by L&T to purchase additional 31 per cent shares of Mindtree. The action of hostile takeover bid by L&T evoked emotional criticism from Mindtree founders. Mindtree efforts to defend itself could not materialize. L&T’s stake crossed 26 per cent on May 16, 2019. After Indian regulator SEBI’s approval, L&T’s open offer to buy shares from Mindtree shareholders commenced on June 17, 2019. The case examines motivation of the acquirer firm particularly when it is a conglomerate, and how a well-performing company became a target for hostile takeover. It looks at vulnerabilities of a target firm, and defensive steps a firm can take to fence itself against such takeover. The case also explores how organizational culture is built in a people-oriented business, namely, digital services, and what role it plays in a merger of two firms.

Complexity academic level

The case is suited for postgraduate students of management, as well as those undergoing executive courses in management.

Supplementary materials

Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Subject code

CSS 11: Strategy.

Details

Emerald Emerging Markets Case Studies, vol. 9 no. 3
Type: Case Study
ISSN: 2045-0621

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Article
Publication date: 12 March 2019

Ranajee Ranajee and Rajesh Pathak

The purpose of this paper is to examine the cash holding of firms during a crisis and test the widely accepted determinants of corporate cash holding (CCH) for their…

Abstract

Purpose

The purpose of this paper is to examine the cash holding of firms during a crisis and test the widely accepted determinants of corporate cash holding (CCH) for their consistency across periods of crisis, stability and recovery, and across firm categories, in the emerging market context of India.

Design/methodology/approach

The study employs panel data and Fama–Macbeth regression techniques on publicly listed firms during 2001–2015, amid controls for idiosyncratic factors. Further empirical analysis is carried out through the disaggregation of firms based on group affiliation, controlling stake of promoters, financial constraints and firm size.

Findings

The study reports that cash levels are significantly higher during crisis periods for Indian firms. Moreover, promoter holding is observed to be a strong predictor of CCH, which is an addition to the list of predictors in existing literature. Additionally, most of the predictors of cash holding turn out to be consistent through periods of financial crisis, stability and recovery. A firm’s age and growth prospects do not determine cash levels for Indian firms; however, cash-flow volatility, firm size, leverage and non-cash working capital requirements help to determine the cash levels of the firm consistently through different periods. Group-affiliated firms are less likely to engage in cash accumulation as opposed to firms that are large and financially constrained and have high promoter stakes.

Originality/value

The study is unique because it examines the consistency of determinants of cash holding across good and turbulent times and across firm classifications. Moreover, the study uses a broad sample of firms and investigates the topic for a relatively long period in an emerging market setup.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 7 August 2017

Rakesh Mishra and Sheeba Kapil

This paper aims to explore the relationship of promoter ownership and board structure with firm performance for Indian companies.

Abstract

Purpose

This paper aims to explore the relationship of promoter ownership and board structure with firm performance for Indian companies.

Design/methodology/approach

Corporate governance structures of 391 Indian companies out of CRISIL NSE Index (CNX) 500 companies listed on national stock exchange (NSE) have been studied for their impact on performance of companies. Panel data regression methodology has been used on data for five financial years from 2010 to 2014 for the selected companies. Performance measures considered are market-based measure (Tobin’s Q) and accounting-based measure (return on assets [ROA]).

Findings

The empirical findings indicate that market-based measure (Tobin’s Q) is more impacted by corporate governance than accounting-based measure. There is significant positive association between promoter ownership and firm performance. It is also indicated that the relationship between promoter ownership and firm performance is different at different levels of promoter ownership. Board size is found to be positively related to ROA; however, board independence is not found to be related to any of the performance measures.

Research limitations/implications

Limitations of the study are in terms of data methodology and possible omission of some variables. It is felt that endogeneity and reverse causality might be better addressed using simultaneous equation methodology.

Originality/value

The paper adds to the emerging body of literature on corporate governance performance relationship in Indian context using a reasonably wider and newer data set.

Details

Corporate Governance: The International Journal of Business in Society, vol. 17 no. 4
Type: Research Article
ISSN: 1472-0701

Keywords

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Article
Publication date: 1 January 2004

Shailesh Jaitly

This study investigates the pricing of new issues in the Indian equity market during the period shortly following the deregulation of the market for new issues. We…

Abstract

This study investigates the pricing of new issues in the Indian equity market during the period shortly following the deregulation of the market for new issues. We evaluate the importance of book value and market value estimates in determining issue prices as well as prices on the first day of trading. We also use variables that may reduce uncertainty (age to proxy for awareness of the company) and information asymmetry (the extent of the promoter’s contribution to the new issue) in order to test whether uncertainty and information asymmetry have an impact on pricing of new issues. Results indicate that pricing of new issues appears to be consistent with rational decision‐making. We also examine the extent of underpricing of IPOs in India by calculating the rate of return earned by the subscribers on the first day the shares trade publicly. The first day return is, on average, 72 per cent. We then simulate what this return would have been if the government regulations had still been in place. With government restrictions, the first day’s return would have been 160 per cent. These results are consistent with the expectations that removal of restrictions results in lower returns to subscribers and lower cost of capital for the issuing firm. Finally, we examine whether there are differences in first day returns or other variables for companies that issue shares at a price above the government benchmark and the companies that issues shares at prices below the benchmark. Results indicate that there are no significant differences in first day returns between the two groups of companies. There are, however, significant differences between the two groups with respect to relative size of the issue and the difference between the forecasted and current book value. This indicates that the CCI price might be used as a benchmark, which is, then adjusted upwards or downwards to place greater emphasis on expected performance.

Details

Managerial Finance, vol. 30 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 October 2019

Sandhya Bhatia, Sangita Choudhary, Amish Dugar and Smita Mazumdar

The purpose of this paper is to investigate the impact of agency risk implied in case of personal debt obtained by promoters through pledging of their stock on accrual and…

Abstract

Purpose

The purpose of this paper is to investigate the impact of agency risk implied in case of personal debt obtained by promoters through pledging of their stock on accrual and real earnings management practices.

Design/methodology/approach

In this paper abnormal accruals, as suggested in Dechow et al. (1995), and the real earnings management proxies as indicated in Dechow et al. (1998) and Roychowdhury (2006) are used. OLS regression is run over 29,054 firm-years of Indian companies starting from the year 2008 to 2016. Then the occurrence of earnings management is tested in firms in year t where promoters pledge/release their holdings from the pledge in year t+1.

Findings

The findings suggest that earnings management increases in the prior year with an increase in the proportion of promoters’ stock pledge in the subsequent year. The authors find evidence for increased earnings management through accruals and also for real earnings management using abnormal cash flows and abnormal discretionary expenses. However, the authors do not find real earnings management using abnormal production cost as a measure.

Practical implications

The paper has considerable implications on managerial behavior toward earnings management because of the flexibility managers have in applying accounting policies and authority in operating decisions under domestic GAAP, and IFRS and earnings are prone to management tactics, fostering agency risk when they relate to the welfare of decision makers.

Originality/value

This paper addresses the consequences of individual borrowing of promoters collateralized by their stake in the firm, which is a global phenomenon, on reporting quality.

Details

Asian Review of Accounting, vol. 27 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

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