Group affiliation and the performance of IPOs in the Indian stock market |
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| Authors: | Vijaya B. Marisetty Marti G. Subrahmanyam |
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| Affiliation: | 1. Department of Accounting and Finance, Building H, Caulfield Campus, Monash University, Caulfield, Vic 3145, Australia;2. Leonard N. Stern School of Business, New York University, Kaufman Management Center, 44 West 4th Street, New York, NY 10012, USA |
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| Abstract: | We document the effects of group affiliation on the initial performance of 2,713 initial public offerings (IPOs) in India under three regulatory regimes during the period 1990–2004. We distinguish between two competing hypotheses regarding group affiliation: the “certification” and the “tunneling” hypotheses. We lend support to the latter by showing that the underpricing of business group companies is higher than that of stand-alone companies. Furthermore, we find that the long-run performance of IPOs, in general, is negative. We also find that Indian investors over-react to IPOs and their over-reaction (proxied by the oversubscription rate) explains the extent of underpricing. |
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