Subscription Patterns, Offer Prices and the Underpricing of IPOs

39 Pages Posted: 14 Feb 2009

See all articles by Arif Khurshed

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance

Alok Pande

Government of India; Indian Institute of Management (IIMB), Bangalore

Ajai K. Singh

Department of Finance, University of Central Florida

Date Written: February 14, 2009

Abstract

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.

Keywords: IPOs, bookbuilding, underpricing, winner's curse

JEL Classification: G11, G15, G18

Suggested Citation

Khurshed, Arif and Pande, Alok and Singh, Ajai K., Subscription Patterns, Offer Prices and the Underpricing of IPOs (February 14, 2009). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1343024 or http://dx.doi.org/10.2139/ssrn.1343024

Arif Khurshed (Contact Author)

University of Manchester - Manchester Business School, Division of Accounting Finance ( email )

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+44 0 161 275 4475 (Phone)
+44 0 161 275 4023 (Fax)

Alok Pande

Government of India ( email )

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

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