Long run post issue performance of fixed price and book built IPOs: an empirical study on Indian markets

Abstract

Purpose: The purpose of this paper is to investigate empirically the difference in long run post issue performance of initial public offerings (IPOs) that tapped the Indian primary market through a fixed price offer and book building offer; also to assess the persistence of underperformance between these two routes of offering. Design/methodology/approach: The after market performance of the IPOs is empirically assessed based on their market prices and also taking into consideration the other factors associated with the after market performance such as the period of issue (boom/slump), sector in which the industry is operating, etc. Findings: The results suggest that there is no difference in the direction of performance of the issues post listing in the short run, however in the long run the issues that tapped the market through the book building route seemed to perform far better than the ones that raised money through a fixed price offer. The results also suggested that the average return irrespective of the route of issue remains the same and this is because of the high initial return of issues that tapped the market with fixed price offers. Originality/value: The paper provides useful information about the IPO markets of India and abroad, related literature and theories or hypotheses concerning methods of issue.

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“…A similar result is depicted by the CAR when smaller windows around the announcements date have been taken. The outset of the present study is in line with Gopalaswamy et al (2008), Sinha & Gupta (2011) but in contrast with the studies conducted by Anand & Singh (2008) and Khan (2011).…”

“…The merger announcement has a signi…cant and positive impact on the wealth of both bidders and targets the bank's shareholders in the Indian banking sector (Anand & Singh, 2008). However, in post-merger, the cumulative returns saw a downward trend implying a negative impact of the M&A (Gopalaswamy et al, 2008). From the …nancial performance point of view, in post-merger, the Indian acquiring …rms could generate synergy in the form of higher cash ‡ow, more business diversi…cation and cost-cutting (Kumar & Bansal, 2008).…”

Studies on Indian IPO: systematic review and future research agenda

“…IPO underpricing over the years is ubiquitous phenomenon as observed in various studies (Krishnamurti and Kumar, 2002). Studies have also identified that short term over performance of IPOs of companies increases the expectations of potential investors and leads to a subsequent decline of long run performance (Bhatia and Singh, 2013; Gopalaswamy et al , 2008; Dhamija and Arora 2017a; Kohli, 2009; Mangala and Dhanda, 2019; Marisetty and Subrahmanyam, 2010; Mayur and Mittal, 2014). Contradicting this, Indian SME IPOs exhibit long-run over performance (Arora and Singh 2020b; Dhamija and Arora 2017c).…”