Do Firm- and Board-specific Characteristics Corroborate Underpricing? A Study on the Indian IPOs

Abstract

The present research article is an attempt to add something new and revalidate the influence of already existing corporate governance dimensions related to the board of directors on listing-day performance of the Indian initial public offering (IPO) firms measured through underpricing. Like other emerging market economies, firms in the Indian economy are also characterized by concentrated ownership held by an owner or a promoter in the context of the Indian corporate environment. In the backdrop of this concentrated complex ownership structure, the present study analyses the influence of the board of directors on underpricing when the appointment of such directors is largely an affair handled by such owners, whom they are given the task to monitor. The sample consists of 471 IPO firms which went public during the time period from January 2003 to December 2017. Results obtained from the regression analysis show that the board size and board committees act as information signals for Indian IPO firms having a significant and negative relation with listing-day initial excess returns. Other boardrelated dimensions of governance do not have significant influence on underpricing. Overall board variables have a very miniscule contribution in explaining the underpricing in Indian IPO firms.

The evolution of corporate governance and agency control: the effectiveness of mechanisms in creating value for companies with IPO on the Brazilian stock exchange

“…A typical IPO launch process can take around 6–12 months. On the US market, once a company reaches a preliminary understanding with its underwriters, the IPO process starts in full force, followed by a “quiet period” during which the company is subject to Securities and Exchange Commission guidelines regarding the publication of information not contained in its prospectus (Anand and Singh, 2019). However, Brazilian firms are allowed to promote business and disclose information regarding its value both before and after registering the IPO prospectus.…”

Board characteristics, ownership concentration and SME IPO underpricing

“…The optimal board size for SMEs is still an object of debate, with few studies emphasizing the advantages of larger board sizes and other studies elaborating on smaller board sizes. In the IPO context, the unconvincing nature of the relationship between board size and underpricing calls for further discussion (Li and Naughton, 2007; Bédard et al , 2008; Mitchell Van der Zahn et al , 2008; Mnif, 2009; Hearn, 2011; Darmadi and Gunawan, 2013; Handa and Singh, 2017; Anand and Singh, 2019). Regarding board independence, it is generally inferred that independent directors enhance board quality through effective monitoring and exchange of valuable knowledge and technical guidance, supporting an organisation’s development.…”

“…However, inconclusive evidence concerning underpricing calls for further investigation of this variable (Bédard et al , 2008; Chahine and Filatotchev, 2008; Mitchell Van der Zahn et al , 2008; Mnif, 2009; Yatim, 2011; Lin and Chuang, 2011; Darmadi and Gunawan, 2013; Handa and Singh, 2017; Alvarez-Otero and Lopez-Iturriaga, 2018). Some authors have explored the role of board committees (Hearn, 2011; Handa and Singh, 2017; Anand and Singh, 2019) in various settings and with multiple performance measures, with weak conclusions, which call for further debate. With regards to ownership concentration, Ekkayokkaya and Pengniti (2012) have found that large shareholders on the board act as a double-edged sword: on the one hand, they assist in addressing agency issues; on the other hand, they aggravate expropriation risks, particularly in economies with weaker institutional regimes.…”

“…Limited research has focused on developing economies and how their typical governance structures differ from developed economies is still unclear. Various studies examining the impact of board structure and ownership structure on IPO underpricing, particularly in the Indian setting (Anand and Singh, 2019; Arora and Singh, 2020; Handa and Singh, 2017), are largely prescriptive and only analyse the direct link between the concerned variables. A significant research gap exists concerning the role of moderating variables in influencing organisational performance, especially IPO underpricing.…”

IPO performance anomaly: evidence from new aged ventures and loss-making listings in India

“…Secondly, complementing the literature skewed with the developed economies, particularly US and the European market and China in the context of emerging economies, the study explores the traits of sound IPOs in the Indian market. Indian IPO market captured researchers' tractions post-1995, with listing returns (Babu and Dsouza, 2021;Maheshwari and Kumar, 2022), under-pricing (Ghosh, 2005;Ranganathan and Saraogi, 2021), earning-management (Mangala and Dhanda, 2021;Pandey and Pattanayak, 2022), anchor investors (Kumar and Sahoo, 2021;Sahoo, 2017), allocation (Bhattacharya et al, 2020;Seth et al, 2019), board diversity and other qualitative factors (Agarwal and Vyas, 2022;Anand and Singh, 2019) as the prime focus. To the finest of the authors' information, this is the first Indian study examining the IPO performance and post-listing market sustainability determinants.…”