Underpricing, Ownership and Liquidity of Initial Public Offers (IPO) and Their Impact on Performance of IPO Stocks in Equity Markets of India

Paper studies the impact of the liquidity, underpricing and ownership up on both the short term and long term performance of the Initial Public Offer (IPO) stocks in the equity markets of India. Empirical analysis is undertaken to study the impact of liquidity, underpricing and ownership on Performance of IPO stocks. Multiple regression analysis is undertaken for analyzing the impact. It is found that the short term and long term performance of underpriced IPO stocks is highly dependent on the amount of underpricing at IPO time, Whereas the overpriced IPO stocks depends on the long term liquidity characteristics for the long term performance. However the market adjusted returns are influenced by the liquidity in the long term and non-significantly by the underpricing. Holistic model built in the study explains 80 percent variance of first week returns, 30 percent variance of first year returns and 20 percent variance in the 3 years returns. Inclusion of Ownership structure and liquidity variables in the model provides better explain ability of the IPO stocks performance in the long term.