Subscription Patterns, Offer Prices and the Underpricing of IPOs
University of Manchester - Manchester Business School, Division of Accounting Finance
Government of India; Indian Institute of Management (IIMB), Bangalore
Ajai K. Singh
Case Western Reserve University - Department of Banking & Finance
February 14, 2009
EFA 2009 Bergen Meetings Paper
Certain unique characteristics of the Indian bookbuilding process allow us to study the timing and subscription pattern of different investor groups and to dissect underpricing into two distinct components: one relating to pre-listing, set by the underwriter and the other from the post-listing period, which is determined by the market. Our results show the presence of sequential learning among IPO investors. Retail and Non-institutional investors follow the Institutional investors' subscription patterns when bidding for shares. The transparency of the bookbuilding process in the Indian IPOs helps alleviate the winner's curse problem for the non-institutional and retail investors. We also show that market underpricing is primarily driven by the unmet demand of the non-institutional investor groups. This insight is unprecedented in the IPO literature.
Number of Pages in PDF File: 39
Keywords: IPOs, bookbuilding, underpricing, winner's curse
JEL Classification: G11, G15, G18working papers series
Date posted: February 14, 2009
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