Journal of Financial Risk Management
2012. Vol.1, No.4, 68-74
Online December 2012 in SciRes (
Copyright © 2012 SciRes.
Determinants of IPOs Initial Return: Extreme
Analysis of Indian Market
Rohit Bansal, Ashu Khanna
Institute of Technology, Roorkee Uttrakhand, India
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
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,
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,
(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-
(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.
1) To measure the IPOs initial performance on first trading
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 
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-
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
Copyright © 2012 SciRes. 69
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
Equation 4
 
Maaro1001 Ri1Mi1 
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)
link between book build pricing
Measure of Private Issuing Firms (Dummy Variable)
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-
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
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-
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-
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
Copyright © 2012 SciRes.
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
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:
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)
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 =
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
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
Copyright © 2012 SciRes. 71
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
− −
− −
− −
R-ed 3.
Adjusted 0.391403S.D. dependent var 1.484142
S.EAkaike info cr
Sum sid
L511.7160Hannan-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
. 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
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
Copyright © 2012 SciRes.
Table 4.
Results of null hypothesis @ 5% significance level (z = ± 1.96).
S. No. Variable z-StatNull
hypothesis H0 Relation with
1 LOGISSUESIZE 3.98Rejected Negative
2 LOGINDP 0.18Accepted No relation
P No relation
GINDNON0.54Accepted No relation
4 GNONINSTNON0.78Accepted No relation
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
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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