Do Grade of an IPO Improve Demand and Underpricing?

Forthcoming, proceedings of the International Conference on "Emerging Global Strategies for Indian Industry", 20th to 22nd February, 2014, Sinhgad Institute of Management, Pune

14 Pages Posted: 4 Mar 2014

See all articles by Sudesh Kumar Sharma

Sudesh Kumar Sharma

Sinhgad Institute of Management & Computer Application; Sinhgad Institute of Management

Date Written: March 3, 2014

Abstract

SEBI, the Indian securities market regulator had set a unique example for the entire world when they introduced mandatory IPO grading in India with effect from May 2007. Though the purpose of this grading was to provide retail investors with a ready-made assessment of the fundamental quality of the issuer of an IPO, so they could make a better and informed investment decision in an era of information overload, it faced severe criticism from all players of the market. Using a data set of 355 IPOs, inclusive of 131 graded IPOs, findings of this paper suggest that IPO grading does have strong positive effect on demand (oversubscription) and fairly strong negative effect on underpricing. This paper infers that NII and QIB are more benefitted from grading of IPOs than the retail investors.

Keywords: IPOs, IPO Grading, underpricing, oversubscription, retail investors

JEL Classification: G11, G14, G15, G18, G32

Suggested Citation

Sharma, Dr. Sudesh Kumar, Do Grade of an IPO Improve Demand and Underpricing? (March 3, 2014). Forthcoming, proceedings of the International Conference on "Emerging Global Strategies for Indian Industry", 20th to 22nd February, 2014, Sinhgad Institute of Management, Pune, Available at SSRN: https://ssrn.com/abstract=2403788 or http://dx.doi.org/10.2139/ssrn.2403788

Dr. Sudesh Kumar Sharma (Contact Author)

Sinhgad Institute of Management & Computer Application ( email )

Sinhgad Narhe Technical Campus, Narhe-Dhayari Road
Ambegaon Budruk
Pune, Maharashtra, Maharashtra 411041
India
9960290601 (Phone)

Sinhgad Institute of Management ( email )

Pune, Maharashtra 411041
India

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