Initial and After-market Performance of SME IPOs in India

Abstract

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.

Determinants of oversubscription of SME IPOs in India: evidence from quantile regression

“…it is the situation of under subscription. Numerous studies discovered oversubscription as a determinant of underpricing on the pretext that higher demand surges up the prices in aftermarket (Chen et al, 1999;Chi and Padgett, 2002;Bhattacharya, 2017;Dhamija and Arora, 2017). However, the present study utilizes it as an outcome variable.…”

“…Prior theoretical and empirical literature has predicted the relevance of oversubscription on IPO underpricing. Like Chen et al (1999), Chi and Padgett (2002), Bhattacharya (2017), Dhamija and Arora (2017) chronicled the positive relationship between oversubscription and underpricing, suggesting that higher demand for offerings is placed by large number of "privileged" investors on account of favorable information about the future prospects of company. This higher demand surges up the market prices on the first day of trading, resulting into higher initial returns.…”

The four stages of the knowledge sharing process in SMEs

“…SMEs in India include micro, small and medium-sized enterprises (MSME) (see Appendix for classification). MSMEs constitute an important part of the Indian economy, consisting of 36 million units providing employment to over 80 million people and contributing about 8% to the national GDP, 45% to the total manufacturing output and 40% to exports (Dhamija and Arora, 2017).…”

“…Although SMEs in India contribute greatly to a fast growing economy, they continue to struggle on multiple accounts such as inadequate scale of operations, use of obsolete technology, supply chain inefficiencies due to poor infrastructure support, increased competition in price from the products of global industries, higher loan repayments and fluctuating interest rates, inadequate planning for implementing changes in manufacturing strategies and lack of understanding of market scenarios (Jain and Gandhi, 2016). These companies must share knowledge internally, as well as externally, as they aim to improve their viability and, if possible, to grow in uncertain times (Dhamija and Arora, 2017).…”

Deferred Tax Assets and Deferred Tax Expense Against Tax Planning Profit Management

“…Managers tend to favor earnings management policy by controlling the accrual transaction. Mulford and Comiskey (2010) defined as the manipulation of accounting earnings management with the aim of creating the company's performance in order to look better than it actually is (Dhamija, 2017). Earnings management can occur for the preparation of financial statements using accrual basis provides an opportunity for managers to issue accounting considerations which will impact on reported earnings (Gao, 2017;Chiwamit, 2017;Meiseberg, 2017).…”