SumitGoyal, Inderpal Singh (2014). A Study on the performance of Initial PublicOffering. Apeejay Journal of Managementand Technology, Volume 9. Through this paper, an attempt has been made toempirically explore the performance and determinants of under-pricing ofInitial Public Offerings (IPOs) in the Indian market.
Research attempts toexamine the performance of IPOs listed on NSE. The study presents evidence onperformance of IPOs on the initial day of listing i.e. 1st day of listing of271 companies listed on NSE. The study reports that 79.33 percent of the IPOsissued were under-priced on the day of listing. It suggests that the highinitial return may be due to the over expectation of investors.
The study alsoevaluated the performance of IPOs on the 30th day from the day of listing whichreported only 45.38 percent under-pricing. It concludes that on 30th day theexpectation of the investors gets decreased. The independent variables i.e. ageof the firm, ex-ante, market volatility, leverage ratio, are able to explain23.
8 variability of the under-pricing. The sector analysis of IPOs providedthat information technology, power, steel, real estate are the sector where theIPOs were under-priced heavily i.e.
90 percent and above companies of these sectorswere under-priced on the initial day of listing. It can be interpreted thatIPOs are risky and thus fail to attract more interest from the investors. Toattract more interest of the investors the companies deliberately under-pricetheir issue to gain profit from their investors. IPOs might be perceived to bemore risky and uncertain at the time of issue which results in greater under-pricing.Issuing firms could be able to make a trade-off in the short-term under-pricingand long-run underperformance. Dr.Anuradha Sheokand (2015). A comprehensive study on Under Pricing in IndianInitial Public Offerings, InternationalJournal of Informative & Futuristic Research.
The above analysissupports the existence of significant under-pricing in Indian IPOs market andconfirms the results of other Indian studies (Shah 1995), Krishanmurti (1999),Jaitly (2004) and Singh (2008). It can be concluded that average high rawreturns and MAERs and large IPO volume during the boom period might beindicative of the investors? optimism resulting from the liberalizationinitiated by government and SEBI during the first half of 1990s. It wasdocumented in the IPOs literature that small and young companies were likely togo public during the hot period to take advantage of investor’s enthusiasm.Signally theory claimed that the good firms would get listed during the hotperiod and under-priced more to win investor’s confidence. The main objectivewas to find out the performance of Indian IPOs for short period, i.e.
from thedate of offer to the public to the date of their first day of trading afterlisting on stock exchange. Also comparison was made between the boom period(1992-96) and the slump period (1997-2007) to draw a better conclusion. Theshort term performance has been calculated by using the traditional method,i.e. the difference between the closing price on the first day of trading andoffer price and divided by the offer price. PaulA. Gompers and Josh Lerner (2003). The Really Long-Run Performance of InitialPublic Offering.
The Journal Of Finance.This paper has sought to assess the performance of IPOs by examining the periodbefore the creation of Nasdaq. The author says that by considering a periodwhere returns of IPOs have not been systematically examined, we hope to shedlight on whether the poor performance is driven by some fundamental behavioralanomaly or rather is just an idiosyncratic feature of the recent time periodthat has been the focus of prior academic studies. Pre-Nasdaq IPOs represent apotentially powerful out of-sample test of IPO underperformance. Most papersthat examine IPO performance in other countries, as works such as Rouwenhorst(1998) highlight, may be finding similar patterns because of common economicfactors or common investor biases across countries at the same time. In asample of 3,661 IPOs between 1935 and 1972, we find underperformance when eventtime buy and hold abnormal returns are used, but even this result is notconsistently statistically significant. The underperformance disappears when weuse cumulative abnormal returns.
A calendar-time analysis shows that IPOsreturn at least as much as the market over the entire sample period. Finally,the intercepts in CAPM and Fama-French three-factor regressions are insignificantlydifferent from or even greater than zero. In short, the relative performance ofan IPO sample depends on the method of examining performance. One methodologysuggests that this sample underperforms; others suggest superior performance.Our analysis of pre-Nasdaq IPOs serves to underscore the questions about IPOperformance raised in Brav and Gompers (1997). The weakness of the evidence forunderperformance and the failure to observe a consistent pattern raise doubtsabout whether a unique IPO effect indeed exists. Is there a real behavioralanomaly at work here, or rather is the poor performance of the offerings in theNasdaq era simply a historical accident? Fama (1998) suggests that spuriousanomalies can be anticipated when stock returns are examined repeatedly.
Alternatively, systematic underperformance may be present in the data, but thissystematic underperformance would then affect a much larger class of companies.Future tests of market efficiency need to look beyond individual anomalies andaddress broader market movements if they are to shed more light.DanielDorn (2009).
Does Sentiment Drive the Retail Demand for IPOs? Journal of Financial and QuantitativeAnalysis. The main focus to infere if sentiment drives the demand forIPO’s. Based on his findings the author concludes that sentiment drives IPOpurchases made by a sample of clients at a German retail broker. This can beinferred from the clients’ willingness to trade against institutional investorsin the WI market and pay a substantial WI premium relative to prices in theimmediate aftermarket.
The inference that investors act on sentiment istherefore not based on long-horizon returns as in prior work. Although theperiod during which I observe individual-level WI transaction data only spansAugust 1 999 to May 2000, the poor performance of retail investors in the WImarket can be confirmed out of sample, using publicly available WI dataprovided by a leading WI market maker for the subsequent period from June 2000to April 2001 . Specifically, I document that retail investors remain willingto pay the WI premium even after the crash of mid-2000.
This suggests thatsentiment investors do not simply disappear during periods of poor returns. Thepoor performance of IPOs aggressively bought by retail investors, either in theWI market or in the aftermarket or both, is consistent with retail sentimentinitially pushing aftermarket prices above fundamental values. In particular,variation in retail IPO purchases explains variation in aftermarket returnsduring my sample period, after controlling for IPO characteristics that havebeen previously related to aftermarket returns.