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The IUP Journal of Management Research :
Short-Run Performance Analysis of IPOs in the Indian Market
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A private company uses Initial Public Offerings (IPOs) to raise equity capital from the public who in turn become shareholders of the company after listing of its equity shares in the stock exchanges. IPOs have become very popular worldwide. Post-listing, the public shareholders get an opportunity to cash-in on the listing gains (typically in the short-term) or continue to be a part of the company’s growth story (in the long-term). Typically, such investment decisions are based on the investors’ returns expectations in the short and long-term, given the risk appetite. To analyze these critical aspects, several research studies have been undertaken globally. The extant literature suggests that the IPOs generally perform poorly in the long-term but offer good short-term returns. The purpose of this paper is to study the short-term performance of 117 IPOs issued for subscription in India during 2009-2013 by way of Market Abnormal Excess Returns (MAER) and identify the factors which affect their performance.

 
 

An Initial Public Offering (IPO) is the first time when the stock of a private company is offered to the public. IPOs are often issued by comparatively smaller and younger companies seeking capital for expansion and diversification. These are also issued when the large privately-owned companies look to become publicly traded. They are released to raise money or capital for the company. Besides creating new financial opportunities for a company, an IPO increases the firm’s public exposure as well. The IPO presents a cheaper fund raising option than loan. IPOs are a lucrative way for companies to generate capital. They are relatively risk-free when it comes to capital generation. The investors in return for their money get a part of ownership of the company in the form of shares or common stock. This ownership means that in case of a loss, the money received by the company from the investors need not be returned to them because they are also, in part, owners of the company.

There are different types of investors who invest in IPOs: short-term and long-term investors. The classification is made based on the kind of returns the investors expect. The long-term returns from IPOs are generally considered poor and thus IPOs are considered a risky investment option. However, IPOs present an attractive avenue for short-term investments. It has been observed that about 60% IPOs give listing day returns in double digits and only a fifth of them end up the listing day in the red zone. This has promoted a culture of them being used as a short-term investment avenue.

This paper aims to identify and understand the factors which dictate the short-term performance of IPOs. The paper will make use of regression analysis to find correlation coefficients of the assumed factors. The investors should be aware of the factors responsible for affecting the short-term performance of IPOs before investing. The paper aims to serve as a guiding principle for the same (by assessing the excess market returns). The study will help us in understanding the specific characteristics of issues like size, delay, price which influence short-term returns.

 
 

Management Research Journal,Initial Public Offerings (IPOs), Equity shares in the stock exchanges,Company’s growth story (in the long-term), Ministry of Tourism (MoT) paid, Market Abnormal Excess Returns (MAER) and identify.