Group Affiliation and the Performance of Initial Public Offerings in the Indian Stock Market

Abstract:     
We document the effects of group affiliation on the initial performance of the 2,713 Initial Public Offerings (IPOs) in India under three regulatory regimes during the period 1990-2004. We distinguish between two competing hypotheses regarding group affiliation and a firmâ¬"s initial stock market performance: the certification hypothesis and the â¬Stunnelingâ¬? hypothesis. We show that the underpricing of group companies is higher than that of stand-alone companies, lending support to the tunneling hypothesis. However, on an ex post basis, we find that group-affiliated companies have a higher probability of survival than their stand-alone counterparts: groups appear to support their affiliates to maintain their reputation.

Number of Pages in PDF File: 63

Keywords: Initial Public Offering (IPO), Underpricing, Business Groups, Certification

working papers series