Role of Private Equity Exit Strategy, Governance Mechanism and Regulatory Constraint on Performance of Indian IPOs
Indian Institute of Techonology Kanpur; Indian Institute of Technology Kanpur
Indian Institute of Technology Kanpur - Department of Industrial and Management Engineering
Indian Institute of Technology, Kanpur
December 2, 2010
The performance of Indian initial public offerings (IPO) is influenced by the ownership structure of a firm. As many firms raise the capital in the form of private equity (PE), this work highlights the impact of governance structure of private equity firms, the decision of exit through IPO route on the performance of Indian IPO. In Indian scenario, private equity (PE) backed IPO shows insignificant role in impacting the degree of underpricing of IPO as well as IPO performance. The insignificant ownership stake held by private equity investors as a consequence of regulatory constraint as well as liquidating less ownership stake through IPO is identified as a differentiating characteristic in India. These observed results are contrary to the results reported by Lee & Wahal (2004). On the other hand it supports the grandstanding hypothesis related to private equity firms put forth by Gompers (1996). However, our results show that PE investment in business group affiliated firms’ shows significant negative impact on its long term performance. The overall performance of IPO follows ‘U’ shape curve.
Number of Pages in PDF File: 26
Keywords: Private Equity, IPO, Governance, Regulation
JEL Classification: G12, G20, G23, G28, G32working papers series
Date posted: December 5, 2010 ; Last revised: December 14, 2010
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