Determinants of IPO underpricing: An Empirical evidence from Bombay stock exchange after stock market crisis

1

Rohit Bansal
Research scholar
Indian Institute of Technology, Roorkee
Uttrakhand, India – 247001
Phone : +919927285001
Email : rohitbansaliitr@gmail.com
2

Dr. Ashu Khanna
Asst Professor
Indian Institute of Technology, Roorkee
Uttrakhand, India – 247001
Phone : +919756972391
Email drashu.khanna@gmail.com

ABSTRACT
Introduction: Underpricing of IPOs has been considered as a prevalent phenomenon across the world. When companies go public, the equity they sell in as initial public offering tends to be underpriced, resulting in a substantial price jump on the first-day trading. However, underpricing an IPO results in “money left on the table”- lost capital that could have been raised for the company had the stock been offered at a higher price.
Purpose of study: This paper is attempts to design for and tests empirical models, which integrate theoretical, institutional, and other factors, which interact to explain ownership structure, Ex-ante in formation at the level of underpricing after the Indian stock market crunch.
Number of share offered, institutional non promoters, issue size, market capitalization, and
1

He is the author & corresponding author of this research paper. He is a research scholar in financial management at Indian Institute of Technology, Roorkee, India. He is doing his Ph.D on IPO underpricing.
He is done his master on business administration from finance and also done master of commerce in finance. 2
She is a co-author of this paper. She is an asst professor at Indian Institute of technology, Roorkee,
India. Her research interest is capital market, security analysis and portfolio management. She is done her Ph.D in finance.
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Electronic copy available at: http://ssrn.com/abstract=2041158

private ipo firm is constructed to be a significant effect on the level of underpricing after the
Indian market crisis. Nevertheless, firm’s age, offer timing, foreign promoters, Indian promoters and non institutional non promoters have no significant difference in the level of underpricing after-market crisis.
Research Methodology: The study is based on ipo that listed at BSE given that 2008 to 2011.
Multiple linear regressions are used to distinguish the relationship between various independent variables with the dependent variable, i.e. level of underpricing. The study discriminates between issuer underpricing and Firm’s age, number of share offered, pricing mechanism (dummy), offer timing, ownership structure, issue size, market capitalization & government- private ipos
(dummy). This paper is attempts to recommend and tests empirical models, which embody theoretical, institutional, and other factors, which engage to explain ownership structure, Ex-ante in formation at the level of underpricing after the Indian stock market crisis.
Findings: The results of multiple regressions reveal that, Firm’s age, Number of share offered, book building pricing mechanism, offer timing, ownership structure, issue size, market capitalization & government- private ipos explained 48% of the variation in issuer underpricing,
Durbin Watson’s value was 1.77. Number of share offered, institutional non promoters, issue size, market capitalization, and private ipo firm is constructed to be a significant effect on the level of underpricing after the Indian market crisis. Nevertheless, firm’s age, offer timing, foreign promoters, Indian promoters and non institutional non promoters have no significant difference in the level of underpricing after-market crisis.
Originality: The study provides useful discernment into which market and firm specific variables are significant in determining the degree of underpricing of IPOs. The study has more prominent implications for investors who subscribe to different IPOs for listing day gain as this study would help them in understanding which type of firms are more likely to underpriced.
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