Performance Determinants of Initial Public Offers (IPOs) in India: Testing Window of Opportunity, Winner’s Curse and Divergence of Opinion Hypotheses

Abstract

Researches in the past have globally witnessed two anomalies in the IPO market viz. Underpricing and Underperformance. The study finds that on an average IPOs have generated 12.35% as listing gain which is less than what was reported in earlier studies. Variables like issue size, subscription rate and timing of the IPO have shown ability to impact the listing performance. As timing of IPO is a significant variable, Window of Opportunity hypothesis withstands.  Performance of IPOs in long run is painfully poor. IPO returns for one year, three years and five years holding period stands at -5.40%, -15.81% and 4.19% respectively. Underpricing is negatively correlated with the long run performance. Subscription rate is also a significant determinant of the performance of IPOs. The findings validate Winner’s Curse, Divergence of Opinion and Impresario Hypotheses.