Authors:
M. G. Viswan and K. Sreeja Sukumar
M. G. Viswan, Assistant Professor, Dept. of Commerce, SSV College, Valayanchirangara, Kerala, Email: viswanmg@ssvcollege.ac.inK. Sreeja Sukumar, Assistant Professor, Dept. of Commerce, St. Peter’s College, Kolenchery, Kerala
Purpose The purpose of this study is to identify the Initial Underpricing/Overpricing in India during the study period and the role of subscription level in explaining this anomaly. Compared to the previous studies which concentrate only on the overall subscription, this study examines the subscription level among various categories of investors and its impact on underpricing. Design/Methodology: Using a sample of 236 IPOs listed on the National Stock Exchange of India during the twelve-year period from 2009-2020, applying Ordinary Least Square Regression (Heteroscedasticity Consistent Model), the Market Adjusted Average Return (Initial Underpricing) is regressed across independent variables of Subscription levels in Investor categories. Three categories of investors are Qualified Institutional Buyers, Non-Institutional Investors, and Retail Individual Investors. The firm-specific control variables such as firm age, Firm size, and return on net worth for the last three years prior to the IPO year are taken as control variables. The difference in MAAR among the overall subscription-level quartiles was tested using ANOVA. E views 9 software was used along with MS Excel to consolidate and analyse the data. Tables and diagrams were also used to present the data more clearly and precisely. Findings The major finding of this study include initial underpricing in the Indian capital market is 14.44%. The underpriced issues were oversubscribed substantially. The results of the study clearly indicate a strong positive relationship between overall subscription and underpricing of IPOs. The study found a significant association between subscription rates in QIB and RII categories but no significant relationship between the subscription level of NII with the level of underpricing. Research Implications The results show a strong positive relation of subscription levels among QIB and RII categories and initial returns which has a predictive power in determining underpricing. This study contributes to the existing IPO literature by examining the components of subscription levels and their relationship with the degree of underpricing.
Keywords: Underpricing, Heteroscedasticity Consistent Model, QIB, NII and RII, MAAR
Received on: 31/01/2023, Revised on: 12/02/2023, Accepted on: 28/02/2023, Published on: 05/05/2023
SMS Journal of Business Management