An Empirical analysis of Initial Public Offerings

Abstract

Initial Public Offerings (IPO) is an event of firm going public for the first time to raise external finance. The presence of asymmetric information among investors about the future performance of the new company has made IPOs one of the most challenging branches of corporate finance research and has evoked much academic interest to this sector. newlineWith the ushering of economic liberalization in India since 1992, there have been many changes in the landscape of the Indian primary market. The abolition of Controller of Capital Issues being the starting point and perhaps the most important of them. Since then, the primary market kept evolving in terms of rules regulations and guidelines. Given the important role played by the primary market in mobilizing resources especially for the developing countries, which seem to depend more on external sources of capital, this thesis does a detailed evaluation of the performance and characteristics of the Indian IPOs over the last decade. The first chapter is introductory, while the second chapter provides a survey of the developments in Indian primary market over the last decade. With the broad canvas drawn, the next four chapters address a set of questions, the summaries of which are as follows: newlineand#61623; Chapter 3 investigates the dramatic swings in the Indian IPO market. The high volume period is referred to as hot and the subsequent slump as cold periods. This chapter investigates the dramatic swing in the Indian IPO market over the last decade. The analysis shows that the volume series was highly autocorrelated during the hot period and during the whole period under consideration. However the autocorrelation in the underpricing series was weak. This shows that the past values of volume series affected the number of future IPOs. Turning to the possibility of any cause-effect relationship between IPO volume and underpricing, evidences suggest no lagged relation between IPO volume and underpricing. These findings indicate that unlike developed countries, the issuers were not infl