Information Content of IPO Grading

Deb, Saikat S.; Marisetty, Vijaya B.

doi:10.2139/ssrn.1276243

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Information Content of IPO Grading

27 Pages Posted: 2 Oct 2008 Last revised: 8 Dec 2008

See all articles by Saikat S. Deb

Saikat S. Deb

Deakin Business School, Deakin University

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Date Written: October 1, 2008

Abstract

IPO grading is an assessment of the quality of initial equity offers. India is the only market in the world that introduced such grading process. We test the efficacy of this unique certification mechanism. Using data of 159 Indian IPOs, we find, grading decreases IPO underpricing and influences demand of retail investors. Post listing, highly graded IPOs attract greater liquidity and exhibit lower risk. IPO grading successfully capture firm size, business group affiliation and firm's quality of corporate governance. Our findings imply that in emerging markets regulator's role to signal the quality of an IPO contributes towards the market welfare.

Keywords: Initial Public Offering, IPO Grading, Underpricing

JEL Classification: G12, G24, G32

Suggested Citation: Suggested Citation

Deb, Saikat Sovan and Marisetty, Vijaya B., Information Content of IPO Grading (October 1, 2008). Available at SSRN: https://ssrn.com/abstract=1276243 or http://dx.doi.org/10.2139/ssrn.1276243