Mandatory IPO Grading: Does it Help Pricing Efficiency?

38 Pages Posted: 2 Jan 2013

See all articles by Joshy Jacob

Joshy Jacob

Indian Institute of Management

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad

Date Written: December 25, 2012

Abstract

The paper examines the market impact of a unique IPO certification recently introduced in India - mandatory grading of IPOs by a credit rating agency. The grading was expected to improve the IPO pricing efficiency by providing comprehensive issue-related information to the market, especially to the retail investors. The results indicate that grading has only a limited influence on the IPO demand of retail and institutional investors. The low grade issues appear to have weaker demand from investors relative to the ungraded IPOs. But there is no evidence to support IPO pricing improvement due to the introduction of IPO grading. This is contrary to the evidence reported by some earlier studies. This suggests the failure of grading as an IPO certification.

Keywords: IPO underpricing, IPO grading, IPO certification, Emerging markets

JEL Classification: G12, G14, G32

Suggested Citation

Jacob, Joshy and Agarwalla, Sobhesh Kumar, Mandatory IPO Grading: Does it Help Pricing Efficiency? (December 25, 2012). Available at SSRN: https://ssrn.com/abstract=2195037 or http://dx.doi.org/10.2139/ssrn.2195037

Joshy Jacob (Contact Author)

Indian Institute of Management ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India
91.79.66324865 (Phone)

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