This article examines the initial and after-market performance of the initial public offerings (IPOs) listed on the recently launched platform for small and medium enterprises (SMEs) by the Bombay Stock Exchange (BSE), Mumbai and the National Stock Exchange (NSE). The study does find evidence of underpricing of IPOs by SMEs in line with other studies internationally. However, the level of underpricing is found to be lower than that of IPOs listed on the main board stock exchanges in India, reported by earlier studies. This may be partially due to the fact that the SME platform is at an infancy stage and has failed to attract investors’ fancy. This is reflected in a low level of oversubscription of SME IPOs at 1.35 times on average. The multivariate analysis identifies the type of offer, size of issue, promoter holding, extent of oversubscription, lead manager prestige and the stock exchange of listing as the key determinants of underpricing of SME IPOs. Post listing, these IPOs have significantly out-performed the benchmark index. The finding is inconsistent with the results of other studies on the main board exchanges where the IPOs, in general, are found to underperform the markets over a significant period of time post listing. This may partly be attributed to thin trading in these stocks and, therefore, to their lower level of liquidity. The findings have significant implications for stock-market regulators, issuers and investors.
Corporate Social Responsibility (CSR) has received increased attention in the recent past as a means for sustainable development. CSR has largely been viewed as a voluntary exercise. However, the Companies Act, 2013 has made it mandatory for a certain category of companies to spend 2 percent of their average net profit in the past 3 years on CSR activities. If a company fails to spend the mandated amount on CSR activities, it is required to explain the reasons for the same in the Board’s report. India thereby became the first and the only country in the world to have mandatory CSR spending. The Act also prescribes the activities that would be eligible for this purpose. The year 2014–2015 was the first year of operations for these provisions. The article aims to critically review the requirements of the Companies Act, 2013 in this regard and assess the implementation of CSR spending requirements in the maiden year of operations.
The article examines the long-run performance of 377 initial public offerings (IPOs) made by Indian companies during the period 2005–2015. The objectives of the article are to analyze whether Indian IPOs underperform or outperform the broad market in the long run and to identify the key determinants of their long-run performance. The results show that the Indian IPOs outperform the broad market initially followed by significant underperformance in the long run. The IPOs listed on the main board during 2005–2015 yielded average initial excess returns (IERs) of about 22 per cent. However, 37 per cent of the IPOs provided negative IERs. The IPOs underperformed the broad market generating –57.33 per cent buy-and-hold abnormal return (BHAR) over 36 months after listing. Only 38 out of 377 IPOs (10 per cent) outperformed the benchmark index over a 36-month holding period. The important issue characteristics that influence the long-run performance of IPOs in India are the type of issuer (government-owned or private), lead manager prestige (LMP), promoter holding and the issue size.
The study examines the impact of quality certification of initial public offerings (IPOs) arising out of lead manager’s reputation, grading by credit rating agencies, presence of anchor investors and the reputation of auditors on the level of IPO underpricing. The mean initial excess return that measures the level of IPO underpricing is 22 per cent based on a sample of 399 IPOs made by Indian companies during the period from April 2005 to March 2015. Contrary to expectations, nearly 37 per cent of the IPOs do not provide a positive initial excess return. Univariate analysis reveals that except for IPO grading, the other quality certification variables do not make a significant impact on the level of underpricing. Graded issues are more fairly priced compared to non-graded issues. The Securities and Exchange Board of India (SEBI), the capital market regulator, has recently done away with mandatory grading of IPOs. As graded issues have been observed to improve pricing efficiency, SEBI should reconsider its decision and reintroduce compulsory IPO grading. Multivariate analysis, that includes other variables, such as issue size, level of subscription and promoters holding, reveals that the two variables that have a significant influence on initial excess returns from IPOs are the issue size and the level of oversubscription of the IPO.
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