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
Date Written: March 3, 2014
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: Suggested Citation