Pricing and performance of Initial Public Offerings

What is it about?

Initial public offering (IPO) is the process by which a firm sells its equity shares to the public for the first time. One of the challenges for the investors is to evaluate the pricing of the IPOs because IPO firms do not have historical price information. Various theories have been developed by the researchers from time to time explaining why the offering price of IPOs is set well below the first day IPOs underperform their benchmark in the long run. This paper studies these two anomalies in the Indian context by taking a sample of 464 IPOs that have come to the market during 2001–2011. In studying the listing day performance, four different prices—opening, high, low and closing on the first trading day are used. The three-year and five-year performances have been negative and significant for the whole sample and for book-built issues, while they are positive and significant for fixed price issues.

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Photo by Markus Spiske on Unsplash

Photo by Markus Spiske on Unsplash

Why is it important?

In studying the listing day performance, four different prices—opening, high, low and closing on the first trading day are used. The three-year and five-year performances have been negative and significant for the whole sample and for book-built issues, while they are positive and significant for fixed price issues.

Perspectives