Determinants of IPOs Initial Return: Extreme Analysis of Indian Market

doi:10.4236/jfrm.2012.14012

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Journal of Financial Risk Management

2012. Vol.1, No.4, 68-74

Published

Online December 2012 in SciRes (http://www.SciRP.org/journal/jfrm) http://dx.doi.org/10.4236/jfrm.2012.14012

Determinants of IPOs Initial Return: Extreme

Analysis of Indian Market

Rohit Bansal, Ashu Khanna

Institute of Technology, Roorkee Uttrakhand, India

Email: [email protected], [email protected]

Received July 2nd, 2012; revised August 17th, 2012; accepted September 14th, 2012

This paper attempts to design and test empirical models, which integrate theoretical, institutional, and

other factors, which interact to explain ownership structure. Ex-ante information at the level of under-

pricing succeeds the Indian stock market crunch. The study is based on IPO that listed at Bombay stock

exchange given that April 2000 to December 2011. Multiple linear regressions are used to distinguish the

relationship between various independent variables with the dependent variable, i.e. level of underpricing.

The outcomes of multiple regressions reveal that, firm’s age, IPO years, book building pricing mechanism,

ownership structure, issue size, & market capitalization explained 44% of the variation in issuer under-

pricing, Durbin Watson’s value subsisted 1.58, which indicates that, there is a positive sequential rela-

tionship between variables. Number of share offered, issue size, market capitalization, subscription offer

timing, book building mechanism and IPO years 2006, 2009 & 2011 are constructed to have important

effect on the level of underpricing after the Indian market crisis. Nevertheless, firm’s age, IPOs year 2008,

private issuing firms, non institutional promoters, Indian promoters and non institutional non promoters

contain no significant difference in the level of underpricing after-market crisis.

Keywords: IPOs; Post Market Crisis; Ownership Structure; Share Holding Pattern; BSE;

Underpricing; Firm Specific Factors; Market Related Variables

Introduction

Undoubtedly, initial public offerings (IPOs) have generated

an enormous amount of public interest and are one of the most

researched areas in finance. Common empiricisms have shown

that IPOs are subject to three well documented anomalies,

namely, the short-term underpricing of IPOs, the hot issue mar-

ket phenomenon and the long-run performance of IPOs. With

regard to short-term underpricing, issuers offer shares to inves-

tors at prices considerably below the subsequently revealed

market value. The underpricing of IPOs is anomalous in the

sense that it appears to contradict the efficient market’s hypo-

thesis. In particular, one would expect the underpricing of IPOs

to disappear over time as the devastating majority of investors

will recognize the implied profit opportunities and make good

use of them. However, the underpricing of IPOs seems to be

persistent in most markets. Furthermore, it would be difficult to

rationally justify the behavior of living owners to sell shares to

outsiders at discounted prices. The fact that these anomalies

exist in numerous developed and developing markets makes

them even more difficult to explain.

There are a number of theoretical explanations and models

underpinning this IPO underpricing. The popular justifications

for this observed phenomenon rest upon the possible existence

of information asymmetries, mainly in the form of ex ante un-

certainties about share prices. Also, according to (Welch, 1989),

(Grinblatt & Hwang, 1989) and other similar studies, there

exists a signaling mechanism where firms send signals to the

market by underpricing their IPOs. Moreover, there are other

possible explanations such as underwriter reputation theories,

investor sentiment theories and prospect theories to explain the

degree of underpricing in the IPO market.

Role of BSE in Book Building Process

BSE offers the book building services through the book

building software that runs on the BSE private network. This

system is one of the largest electronic book building networks

anywhere spanning over 350 Indian cities through over 7000

trader work stations via leased lines, VSATs and campus

LANS. The software is operated through book-runners of the

issue and by the syndicate member brokers. Through this book,

the syndicate member brokers on behalf of themselves or their

clients’ place orders. Bids are placed electronically through

syndicate members, and the information is collected on line

real-time until the bid date ends. In order to maintain transpar-

ency, the software gives visual graphs displaying price v/s

quantity on the terminals.

Theories and Models of Underpricing

Therefore, a number of competing theoretical models have

been developed to explain the initial underpricing of stocks.

The main theories found in the IPO literature are the winner’s

curse hypothesis, bookbuilding theories, and the principal-agent

hypothesis, signaling theories, the law-suit avoidance hypothe-

sis, the ownership and control hypothesis and the investor sen-

timent theory. One of the most important models of underpric-

ing is the one developed by (Rock, 1986) based on the winner’s

curse hypothesis. Rock distinguishes between informed and

uninformed investors. If the issues are underpriced, IPOs will

be oversubscribed by informed investors, resulting in a limited

number of shares being available to uninformed investors. If the

issues are overpriced, IPOs will be sold exclusively to unin-

formed investors who will earn negative initial returns. Thus,

R. BANSAL, A. KHANNA

uninformed investors will be winning the entire issue but at an

unfavorable price, creating a situation termed the winner’s

curse. In order to keep uninformed investors in the IPO market,

securities are offered at a discount from their expected after

market prices. Thus, according to the winner’s curse theory,

IPO underpricing should decrease if the information asymmetry

between informed and uninformed investors is reduced.

Empirical studies have found evidence that the underpricing

for IPOs of financial institutions is related to proxies for asym-

metric information. Signaling (Allen & Faulhaber, 1989) asym-

metric information (Ibbotson, 1975) Offer size (Megginson &

Weiss, 1991) age of the firm (Muscarella & Vetsuypens, 1989)

market capitalization, (McDonald & Fisher, 1972), (Baker &

Wurgler, 2007), Pricing mechanism (Bansal & Khanna, 2012)

determinants of IPO underpricing at BSE (Bansal & Khanna,

2012).

(Leite, 2007), generalized the informational assumptions of

the (Rock, 1986) to address empirical evidence and conjectures

that the standard model based on informed and uninformed

investors is unable to address. They showed that high (low)

market returns induce the issuer to price the issue more conser-

vatively (aggressively) to create a negative relation between the

public signal and the quality of the marginal investor, and in

turn a positive relation between market returns and underpric-

ing.

(Dolvin & Jordon, 2008), addressed the question of whether

or not periods of high underpricing adversely affect pre-existing

shareholders. They found that high levels of underpricing are

associated with increased share retention, which effectively off-

sets much of the potential cost. Overall, the percentage of share-

holder wealth lost is stable over time, unlike underpricing itself.

Also many factors known to be related to underpricing are not

significant determinants of the cost of going public to pre-ex-

isting owners.

(Kumar, 2010) examines the efficiency of IPO issuing me-

chanisms using a sample of Indian IPOs that tapped the primary

market during 2003-2007 by taking into thoughtfulness the

total costs the issuers have to face i.e., including both direct as

well as indirect costs. He finds that from a total cost point of

view the issuers fare neither better nor worse using either book

building or the fixed price offers. Their results also indicated

that the issue expenses associated with book building are more

than those associated with fixed price offers after controlling

for issue size and firm specific characteristics.

(Bansal & Khanna, 2012), analyzes that whatever there is

any significant difference in the magnitude of level of under-

pricing of IPOs that priced through the book build with those

are priced through the fixed price option. They found that the

magnitude of underpricing is concerned; the book-build and

fixed price option gave different results. They found significant

difference in level of magnitude of underpricing in IPOs that

priced during the book build with those that are priced through

the fixed price option.

Objectives

1) To measure the IPOs initial performance on first trading

day.

2) Does ownership structure of Indian stock market affect the

level of the underpricing?

3) Do Ex-ante uncertainty variables impact the degree of un-

derpricing in Bombay stock market?

Research Methodology

Sample and Data Col lec tion Meth o ds

The sample used in this study consists of all Indian firms

which went public on the official market of the Stock Exchange

of Bombay for the period April 2000 until 2011. Presume the

limited number of firms, we have included those that were de-

listed during the sample period. The prospectus is used to col-

lect data prior to listing. These include the offer price, issue de-

tails, dates and amounts, the sponsoring stockbroker, the audi-

tor, and financial information from balance sheets and income

statements. Notwithstanding, for some firms, there is no pro-

spectus and in such cases the annual reports before the year of

listing are used to collect ex-ante information. Furthermore,

information on the issue details of such firms is manually col-

lected from the Registrar of Companies, which keeps files for

all private and public companies in Mauritius. Furthermore, the

SEBI Handbook, which provides a 5-year summary of income

statements and balance sheets for all listed companies, is also

consulted. Moreover, the SEBI Fact book, an annual publica-

tion issued by the SEBI to disseminate information to investors,

is used to collect information on the main market indicators as

well as information pertaining to rights issues and bonus issues

by listed companies. In addition, regular price histories were

collected for each sample firm through the period 1999-2011.

In particular, daily share price data for all sample firms from

the listing date up to three years subsequent to listing are ob-

tained from the (SEBI’s) own quotes as well as from different

stock broking companies.

Measure of Underpricing

Consistent with the standard methodology, underpricing is

calculated as the percentage changing from the offer price to

the closing price in the secondary market.

Equation 1



Log underpricinglnP1P0P0100 

(1)

where P0 = Offer price of the IPOs offered to public, P1= First

day closing price of IPOs listed at stock exchange.





Log UnderpricinglnP1P0P0100  is used to deter-

mine the level of underpricing and to make standard practice

and to avoid hetroscadisticity. We have market adjusted returns

on securities (MAARO).

Firstly, we calculate the return on i security, where we used





RiP1 P0 P0 in which, Ri = return on i security, P1 =

Price of i security on first listing day, P0 = offer price of i secu-

rity.





RiP1P0P0

ys,

Equation 2  (2)

Secondly, we calculate index return on corresponding da

where we used





MiIiI0 I0 in which, Mi = market re-

turn on ith day, ex at listing day, I0= closing

index at offer day.

Equation 3

Ii = closing ind





MiIiI0I0 (3)

e highly volatile

If markets arsuch that there is a major

ange in the price of most stocks during the IPO period, then

initial returns should be market adjusted. To compute the first

day market adjusted return, the return of the market index is

initially calculated as is the closing value of the market index

on the issue date corresponding to the offering by firm i and Mi

R. BANSAL, A. KHANNA

is the value of the market index corresponding to the offering

price of the firm i. The market adjusted return abnormal return

for each IPO on the first trading day is therefore computed as:

MAARO. Finally, we calculate market adjusted return on secu-

rity, where we take Ri from Equation (2) and Mi from Equation

(3).

Equation 4

 





Maaro1001 Ri1Mi1 



(4)

e measure in Equation (4) rests upon the as-

is multiple

: H0: There is no significant difference be-

Measure of Year of IPOs (Dummy Variables)

ifferent years

e is a positive significant relationship between the

Measures of Ownership Structure

any comprises of a distri-

is a positive significant relationship between In-

en intuitional non

intuitional non pro-

Measure of Number of Share Offered

y the total quantity of

Measure of Firm’s Age

n years as the difference between the

irm’s age

Measure of Issue size (Total Amount to Be Raised)

hares of-

significant connection between issue

Measure of Market Capitalization

d as the total number of

t relationship between market capi-

Measure of Subscription

ed as the total number of shares

ationship between subscription and

Measure of Pricing Mechanism (Dummy Variable)

niques

link between book build pricing

Measure of Private Issuing Firms (Dummy Variable)

types

i.e

e is a negative link between book build pricing me-

Measure of Offer Timing (Difference between Offer Date of

of their IPOs

ming leads to more level of underpricing.

However, th

mption that the systematic risk of the IPOs under considera-

tion is the same as that of the index. Indeed, it is highly unlikely

that the betas of the IPOs average to unity, as a number of

studies (e.g., Ibbotson, 1975; Affleck-Graves et al., 1996) have

shown that the average betas of the newly listed firms are sys-

tematically higher than one. As such, the MAARO may be

upwardly biased in the sense that a higher initial performance

of the IPO relative to the market could be observed.

Underpricing is used as dependent variable in th

gression model.

Null Hypothesis

een several independent variables with the level of under-

pricing.

For the measures of IPOs year, we used d

008), (2009), (2010) and (2011) as a dummy variable. Dum-

my variable is used to indicate the years of IPOs issued during

IPOs underpricing. The presence of more IPOs underpricing (In

terms of percentage) years showed with value equal to 1 and 0

otherwise.

H1: Ther

ars of IPOs i.e., 2011 and degree of underpricing.

The ownership structure of a comp

tion of the size of investor shareholdings. Applying a single

measure in the form of a proportion is to be sufficient to deline-

ate distributions with varying shapes. Numbers of shares are

held by promoters and non promoters. We have also taken the

total percentage of their shares holding in the ownership struc-

ture. Afterwards we have converted it into the natural loga-

rithms to make standardized value and to remove the hetro-

scadisticity.

H2: There

an promoters and degree of underpricing.

H3: There is a positive relationship betwe

omoters and the level of underpricing.

H4: There is a positive link between non

oters and level of underpricing.

Number of share offered is measured b

ares that issuing firm has offered to their investors. After-

wards we have transformed it into the natural logarithms to

make standardized value and to remove the hetroscadisticity.

H5: There is a positive relationship between number of sha

fered and degree of underpricing.

Firm age is measured i

ar of IPO and the year of incorporation of the firm.

H6: There is no significant relationship between f

d degree of underpricing.

The issue size is measured as the total number of s

red multiplied by the offer price. However, the total amount

of IPOs (in Crores) rose by the company. Again, the natural

logarithm of this value is used as a standard practice and to

remove hetroscadisticity.

H7: There is a negative

ze and level of underpricing.

The market capitalization is measure

ares multiplied by the market price per share. Again, the na-

tural logarithm of this value is used as a standard practice and

to remove hetroscadisticity.

H8: There is no significan

lizations and less underpricing.

The subscription is measur

quired by several investors on the day of offering. Again, the

natural logarithm of this value is used as a standard practice and

to remove hetroscadisticity.

H9: There is a positive rel

vel of underpricing.

In Indian primary market, there are two pricing tech

at are used to determine the nature of IPOs i.e. book build

pricing mechanism and fixed price option. For the pricing

mechanism again a dummy variable is used to indicate the

presence of book build in IPO underpricing. The presence of

book build pricing mechanism in IPOs is shown with value

equal to 1 and 0 otherwise.

H10: There is a negative

echanism and level of underpricing.

Past data revealed that IPOs issuing company is in two

. some are government companies and some are private com-

panies. Therefore, to analyze the difference between IPOs un-

derpricing and the nature of company types, we used measures

of types of firms as a variable in our model. For the measures of

the firm’s types, again a dummy variable is used to indicate the

presence of private firms in IPOs underpricing. The presence of

private firms in IPOs is shown with value equal to 1 and 0 oth-

erwise.

H11: Ther

anism and level of underpricing.

an IPOs & First Day Listing Date of an IPOs)

Sometime company decides the short period

tween offer date and the listing date on different stock ex-

change. Nevertheless, sometime they decided that offer timing

is measured in days as the difference between the IPOs offer

date, finalized by the issuing firm’s first day listing of the IPOs

at stock exchange.

H12: More offer ti

R. BANSAL, A. KHANNA

s namely, subscription

fer timing, firm’s age,

aaro) = α + β1 l Log (Indprm) + β2

Book build) + β4 Log (Market cap) + β5

he Multiple Regressions Model IPOs were underpriced, out of

priced using book build pricing mechanism and (169) IPOs

were undeinginece n.le ines

les

sion model i.e. Pricing mechanism

IPOs years, firm’s age, offer size of

m’s age, offer

hows the result of multiple regression analysis,

n below:

Degressions.

Mean MediaStd. Skew KurtJarque-Bera

The impact of the independent variable

rate, issue size, market capitalization, of

mber of share offered, private firms (dummy), ownership

structure, IPOs years (dummy) and pricing mechanism (dummy)

by book build option on the dependent variable underpricing is

modeled through multiple regression as:

Estimation Equation

Underpricing (Log m

Log (Issue size) + β3 (

Log (Pvt firms) + β6 Log (Instnonprm) + β7 Log (Non-

instnonpom)+ β8 l Log (Subsc) + β9 Log (Offer timing) +

β10 Log (Firm’s age)+ β11 Log (No of offered share) +

β12 2001y + β13 2002y + β14 2003 + β15 2004 + β16

2005y + β17 2006y + β18 2007y + β19 2009y + β20

2010y+ β21 2011y + e

ra Indian promoters, Log (Issue size) =

Data Collection and Analysis

Table 1 rferings that

were listed a Total (550)

BB-OverFPO-Und

here, Log Maaro = marked adjusted return of IPOs, β = pa

meters, Log (Indprm) =

Issue size, Book build = pricing mechanism book build (Dum-

my variable), Market cap = Market capitalization, Log ( Pvt

Firms) = Private firms (Dummy variable), Log (Inst non prm) =

Institutional non promoters, Log (Non inst non pom), Non in-

stitutional non promoters, Log (Subsc) = Subscriptions, Log

(Offer timing) = Difference between IPOs offer date and IPOs

first day listing date, Log (Firm’s age) = Firm’s age, Log (No

of offered share) = Number of shares offered to public, ε =

Constant.

eveals the details for initial public of

t Bombay stock exchange (2000-2011).

Os were listed at Bombay stock exchange. However, (405)

Table 1.

IPs at Bombay stock exchange from 2000-2011. O

Year Total BSE BB FPO BB-Und

2000 118 67 11 56 6 5 30

2001 16 10 2 8 0 2 2

2002 5 5 1 4 0 1 4

2003 14 11 4 7 3 1 5

2004 28 25 17 8 9 8 6

2005 70 67 48 19 26 21 14

2006 90 89 68 21 36 32 14

2007 106 105 91 14 58 32 7

2008 38 38 33 5 16 17 2

2009 21 21 21 0 14 7 0

2010 73 73 71 2 47 24 2

2011 40 39 38 1 19 19 0

which (234) IPOs were under-

rpric usg fixd prioptio Tabclud

some abbreviations such as, BSE (Bombay stock exchange),

BB (Book building pricing mechanism), FPO (Fixed price op-

tion), BB-Under (IPOs underpricing using book building), BB

over (IPOs overpricing using book building), FPO under (De-

tails of IPOs underpricing using fixed price option underpric-

ing), FPO over (IPOs overpricing using fixed price option).

Descriptive Statistics

Table 2 indicates the descriptive results for all the variab

that are used in our regres

(book building), different

Os, ownership structure, issue size and market capitalization

of the firm’s. Nevertheless, we used mean, median, standard

deviation, skewness, kurtosis and Jarquebera test for normality.

Results reveal the maximum mean value (6.46) & (3.48) for

market capitalization and issue size respectively and standard

deviation (2.18) for market capitalization.

Figure 1 exhibits the mean and standard values for all the

variables that are used in regression model i.e. Pricing mecha-

nism (book building), different IPOs years, fir

size of IPOs, ownership structure, issue size and market capi-

talization of the firm’s. However, we also draw a trend line for

mean value.

Multiple Regression Analysis

Table 3 s

which includes the basic informatio

Dependent Variable: LOGMAAR

Method: Least Squares;

Sample (adjusted): 1319;

tments. Included observations: 319 after adjus

able 2.

escriptive statistics for all variables used in multiple r

Name Dev.

BB 0.73 1 0.44 −1 2.1169.72

A10 0.15 0 0.36 1.92 4.69234.31

A11 0.05 0 0.23 3.72 14.82

Non ins

4. − 1

−

603.84

A8 0.05 0 0.23 3.84 15.72957.5

Age 2.56 2.5 0.97 −0.29 3.7311.73

ffer 0.26 0 0.94 3.4 13.11979.28

1.1 0 1.44 0.2 2.972.19

INDN 2.43 3 1.87 −2.1 9.29761.84

INDP 3.83 191.35 4.84 34.774668.7

SSUESI4.48 .441.73 0.1 3.443.21

MKTC 6.06 5.95 2.18 −0.12 3.646.27

MAARO3.02 3.31 1.48 0.46 2.7612.06

Total 619 550

405 145234 169 86

R. BANSAL, A. KHANNA

-1

Variables

anndevvaMe & Stadard iation lues

Figure 1.

Value for mean and standard deviations of all variables used in our re-

gression model.

multiple linear regression results (see Table 3),

it was clear that ssed against the

level of underprelationship be-

Results & Discussions

Based on the

the entire variables were regre

icing. There is a significant r

een IPO years (2006, 2009 & 2011) and the level of under-

pricing at 5% significance level (z-value = −1.79, −1.92 &

1.69). This examined that IPO year (2006, 2009) has an impor-

tant negative effect on the level of underpricing. However, IPO

year 2011 has a positive effect on the level of underpricing.

Therefore, null hypothesis 1 is rejected in the case of the IPO

year (2006, 2009 & 2011). At the same time, null hypothesis 1

is accepted in the case of rest of the IPO years, which indicates

that there is no significant link between IPO years and level of

underpricing. It reveals that there is no relevant link between

Indian promoters and degree of underpricing @ 5% signifi-

cance level (z = 0.187). In addition, null hypothesis 2 is ac-

cepted. It examines no consequential association between insti-

tutional non promoters and level of underpricing @ 5% sig-

nificance level (z = 0.541). There is no significant link between

institutional non promoters and underpricing. Hence, null hy-

pothesis 3 is accepted. There is no significant difference be-

tween non institutional non promoters with the degree of un-

derpricing at 5% significant level (z = 0.785). Nevertheless,

null hypothesis 4 is accepted. It founded for significant relation

of the number of share offered with a level of underpricing at

5% significance level (z = 1.99). It communicates the positive

link between numbers of share offered with the level of under-

pricing. Consequently, null hypothesis 5 is rejected. There is no

significant relationship between firm’s age and level of under-

pricing at 5% significance level (z = −0.70). Accordingly, null

hypothesis 6 is acknowledged.

There is a significant association of issue size at the level of

underpricing at 5% significance level (z = −3.98). It indicates

the negative link with the level of underpricing. Notwithstand-

ing, null hypothesis 7 is rejected. There is a significant rela-

tionship between market capitalization and level of underpric-

ing at 5% significance level (z = 2.04). This indicates that mar-

ket capitalization has a positive effect on the level of under-

pricing. Therefore, null hypothesis 8 is declined. Significant

relationship between subscription and the level of underpricing

at 5% significance level (6.00). It reveals the positive relation

with the level of underpricing. Nevertheless, Null hypothesis 9

is rejected. There is a significant difference between book build

mechanism and level of underpricing @ 5% significance level

Table 3.

Result of multiple regression analysis.

Variable CoefficientStd. Error z-Statistic Prob.

C −0.9113652.01968 −0.45124 0.6521

A0 −0.5534980.48234 −1.14751 0.2521

A10

− −

INDIANPROM

NONPROST

NONPRMNOINS

− −

−0−

LOG_DIFF IN A0.

R-ed 3.

Adjusted 0.391403S.D. dependent var 1.484142

S.EAkaike info cr

Sum sid

L−511.7160Hannan-Quinn criter. 3.460867

F-statistic 6.944287Durbin-Watson stat 1.589472

Prob (F-statistic)0.000000

A11 0.7417550.43712 1.99689 0908

−0.1731350.36700 −0.47174 0.6375

A1 −0.4780390.99483 −0.48051 0.6312

A3 0.3533890.57702 0.61243 0.5407

A4 −0.1740270.46982 −0.37040 0.7113

A5 −0.5659430.3752 −1.50829 0.1325

A6 −0.6334220.35223 −1.99831 0.0731

A7 −0.2256880.34596 −0.65234 0.5147

A9 −0.875579.45515 −1.99370 0.0554

0.0011070.00589 0.18779 0.8512

MIN0.004381 0.00808 0.54198 0.5882

0.0050960.00649 0.78459 0.4333

GNOOFSHARE0.1580540.09474 1.99823 0.0963

LOGAGE 0.0651940.09218 0.70754 0.4800

LOGISSUESIZE 0.6895320.17302 3.98553 0.0001

LOGMKTCAP0.1970680.11279 2.04716 0.0816

OGSUBSC 0.3905090.06500 6.00696 0.0000

BB 0.4176270.24945 2.67416 0.0952

PVT 0.1118770.27706 0.40379 0.6867

A2 0.473831.764036 0.62069 0.5356

0.681698351824 1.99709 0.0536

squar0.440426Mean dependent v 020999

R-squared

. of regression1.249324iterion 3.352451

squared re

og likelihood

461.9999Schwarz criterion 3.623923

(z =is thas e

effect onel oficing. Nonetheless, null hypothesis

1olink of private uing firmith

the level of underpricing at 5% significance level (z = 0.40).

12 is turned down.

−2.67). Th indicatesat book building ha positiv

the lev

0 is rejected. N

underpr

significant isss w

However, null hypothesis 11 is accepted. There is a positive

association between offer timing and level of underpricing at

5% significance level (z = 1.99). Nevertheless, null hypothesis

R. BANSAL, A. KHANNA

Table 4.

Results of null hypothesis @ 5% significance level (z = ± 1.96).

S. No. Variable z-StatNull

hypothesis H0 Relation with

underpricing

1 LOGISSUESIZE −3.98Rejected Negative

2 LOGINDP 0.18Accepted No relation

3 LOP

LOP

SUN

P No relation

OFFER TIMING

GINDNON0.54Accepted No relation

4 GNONINSTNON0.78Accepted No relation

5 LOG NO OF

SHARES 1.99Rejected Positive

6 LOGAGE −0.70Accepted No relation

7 LOGMKTCAP 2.04Rejected Positive

8 BB 2.67Rejected Positive

9 BSCRIPTIO6.00Rejected Positive

10 RIVATE FIRM’S0.40Accepted

11 1.99Rejected Positive

12 Y2000 −1.14 Accepted o relation

13 Y2001 −0.48 Accepted No relation

14 Y2002 −0.62 Accepted o relation

15 Y2003 −0.61 Accepted No relation

16 Y2004 −0.37 Accepted No relation

17 Y2005 −1.50 Accepted No relation

18 Y2006 −1.99Rejected Negative

19 Y2007 −0.65 Accepted No relation

20 Y2009 −1.99Rejected Negative

21 Y2010 −0.48 Accepted No relation

22 Y2011 1.99Rejected Positive

Co ion

ing intot all fihiche pe

of marke Stock Enge y fo

1999 until 2011, this study examines the evidence on the short-

run under-pricing of IP an average underpric-

ing level within the range 50% is found based on the first day.

prospective investors should pursue the strategy of buying the

)90060-3

nclus

Tak accounrms w have gonublic on th

ficialt of thexchaof Bombar the period

Os. In particular,

sing a regression approach, the degree of underpricing is ex-

plained by the ex-ante uncertainty hypothesis and the owner-

ship structure hypothesis. However, there is limited support for

the signaling hypothesis. In particular, the results show that the

ex-ante information and has a significant positive impact on the

initial returns while the ownership structure has no relevant

negative effect on short-run underpricing. Conversely, the re-

sults show that there is no statistically significant relationship

with other explanatory factors such as return on firm’s age, and

IPO years, ownership structure and the level of underpricing.

The results obtained from this study (see Table 4) show that

fresh issues on the BSE are subject to underpricing, consistent

with developed and other emerging markets. In this respect,

new issues at the offer and selling them immediately on the

initial day of trading. Notwithstanding, the study also reveals

at investors should not hold new issues very long as the high-

est component of the initial returns is found on the first day of

trading and that the average original returns turn negative on

the fourth day of trading.

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