Post Indian stock markets crisis and its impact on IPOs underpricing: From 2008-2011

1
Rohit Bansal
Research scholar
Indian Institute of Technology, Roorkee
Uttrakhand, India 247001
Phone : !1!!272"#001
$%ail : rohit&ansaliitr'g%ail(co%
2
r! "shu #hanna
)sst Professor
Indian Institute of Technology, Roorkee
Uttrakhand, India 247001
Phone : !1!7#*!72+!1
$%ail drashu(khanna'g%ail(co%
"B$%R"&%
Initial ,u&lic offer -IP.s/ is an i%,ortant %ilestone in the life cycle of a fir% and has
significant effect on the fir%0s ,erfor%ance( 1orld2ide, under,ricing is one of the %ost
o&ser3ed ano%alies in the ne2 issue %arket( In this ,a,er, 2e e4,lain the i%,act of Indian
stock %arket crisis on initial ,erfor%ance of IP. under,ricing and to e4a%ine the changes
occurs, due to %arket crisis( 1e ha3e collected 3aria&les like firms age, issue size (total
amount to be raised), market capitalization, subscription rate, number of shares offered to
investors and pricing mechanism (dummy variable)( This ,a,er is tries to e4,lore the
relationshi, &et2een the de,endent 3aria&les under,ricing of an issue and firms age, issue
si5e -total a%ount to &e raised/, %arket ca,itali5ation, su&scri,tion rate and nu%&er of
shares offered to in3estor0s and ,ricing %echanis%( 1e find 51.! " s#uare 6 $.$!
ad%usted " s#uare( 7o2e3er 8ur&in91atson has ga3e 1(7!+ 3alues, 2hich indicate there is
no serial autocorrelation 6 hetroscadisticity ,ro&le% e4ist in the regression %odel( 1e
find that %arket ca,itali5ation, nu%&er of shares offered to in3estor0s and issue si5e is
significant affecting le3el of under,ricing( &ssue size ' number of shares offered is found
to &e negati3e affecting under,ricing( (arket capitalization is found to &e ,ositi3e
relationshi, 2ith under,ricing( 7o2e3er, firms age, subscription rate and pricing
mechanism is not significant relati3e 2ith under,ricing(
Key words: IP., under,ricing, i,os deter%inants, ,ost i,o crisis, IP.s 3aria&les, &ook
&uild, ti%e series analysis, Indian ,ri%ary %arket, fi4ed ,rice o,tions(
1.0 INTRODUCTION
1
He is research scholar, the author & corresponding author of the research paper. Research
interests are portfolio management, stock market and fnancial management at Indian
Institute of Technology, Roorkee, India. He is doing his Ph.D at IP underpricing. He has
pu!lished four research papers in refereed "ournals and also presented f#e papers in
#arious international conferences.
$
%he is a co&author of this paper. %he is assistant professor at Indian Institute of
technology, Roorkee, India. Her research interest is capital market, security analysis and
portfolio management. %he has pu!lished many research papers in di'erent refereed
"ournals and also presented papers in conferences.
1
The decision to go ,u&lic, or %ake an initial ,u&lic offering -IP./ of e:uity, is an
i%,ortant land9%ark in a fir%0s life cycle( In3est%ent &anks act as ,artners of fir%s during
the IP. ,rocess( They ad93ise fir%s ho2 to structure the offering, ho2 to %arket it to
in3estors, organi5e the related road sho2s, and ,erha,s %ost crucially, hel, set the offer
,rice for the issue( 7o2 the issue %anager arri3es at the IP. ,rice de,ends on the offering
%echanis%(
The e%,irical e3idence on the ,erfor%ance of ,ri3ate and go3ern%ent fir%s is also
inconclusi3e( '(egginson )! *!+ 1,,1-+ suggested that ,ri3ati5ed fir%s ,erfor% &etter
than their counter,arts( .n the other hands, -#a.+ 1,8/- has ,ro3ided e3idence 2hich is
su,,orti3e of go3ern%ent enter,rise( The accuracy of ,ricing of an IP. affects the 3alue
of the fir%, as 2ell as the initial returns a3aila&le to its su&scri&ers( -0oughran!
1t!al!1,,2-! '"llen+ 1,8,-, has sho2n under,ricing as a signaling de3ice used &y high9
:uality fir%s 2hich intend to %ake su&se:uent e:uity issues to distinguish the%sel3es
fro% the other fir%s( 'Baron+ 1,82/ ' 'Rock+ 1,8/-+ '"n+ 2008-, ,ro,osed non signaling
e4,lanations for under,ricing( In &aron0s %odel, ad3isers are &etter infor%ed a&out the
e:uili&riu% ,rice of an issue than the issuing co%,any and in3estors( )d3isers ,ro3ide
under2riting, %arketing, and ,rice( ;aron e4a%ines that they ha3e an incenti3e to
under,rice so as to reduce the selling effort and the chance that they 2ill left 2ith unsold
shares
In India, the fi4ed ,rice %echanis% 2as used to ,rice IP.s till 1!!!(8uring this ,eriod
IP.s 2ere under,riced su&stantially( <ost of the researchers are continuously e4,loring
3arious facets of the ,ricing %echanis% to find suita&le e4,lanations for the under,ricing(
'Rock+ 1,8/-+ 2inner curse %odel, infor%ation re3elation theory &y 'Ben3eniste+ 1,8,-+
,rice sta&ili5ation theory &y Rudd '1,,4- ha3e tried to gi3e reasons for the Unde,ricing
,heno%enon( 'Rock+ 1,8/-, de3elo,ed the =5inners curse %odel &ased on the
infor%ation asy%%etry &et2een infor%ed and uninfor%ed in3estors( To entice
uninfor%ed in3estors, co%,anies under,riced ne2 issues so that after %arket ,rice
e4ceeds the offer ,rice(
In3estors are categori5ed as s%all -or retail/ and non9retail -including institutional
in3estors/( Retail in3estors ha3e a ca, on the 3alue of their &ids, currently at I>R 100,000
-a&out ?2000/( Unlike retail in3estors 2ho can su&%it either %arket or li%it orders, non9
retail &idders %ust ,lace only li%it &ids( @alid &ids are those that are at or a&o3e the final
offer ,rice and are eligi&le for allocation u, to the a%ount sought &y the &idder( )n
i%,ortant as,ect of the IP. ,rocess is that all &ids are legally &inding so &idders 2ith
3alid &ids are legally o&liged to take u, any allocations a2arded &y under2riters( In
contrast, &ids are only indicati3e e4,ressions of interest in the UA or the $uro,ean
%arkets( The :uantity of shares a3aila&le for allocation for retail in3estors and institutions
is kno2n &efore the offer( Bifty ,ercent of the shares are reser3ed for institutional &idders(
)dCust%ents &et2een categories can only &e done if a category is undersu&scri&ed( There
are no such IP.s in our sa%,le(
1!1 Pricing mechanisms
There are t2o fre:uently used techni:ues to issue shares in an initial ,u&lic offeringD &ook
&uilding and fi4ed ,rice o,tion( In India and %ost other countries, the &ook &uilding
techni:ue is the %ost fre:uently used %ethod to ,rice shares(
1.2.1. Book-building
;ook ;uilding charges a Price at 2hich securities 2ill &e offeredE allotted is not kno2n in
ad3ance to the in3estor( .nly an indicati3e ,rice range is kno2n( ;ook &uilding usually
leads to %ore aggressi3e ,ricing than traditional fi4ed ,rice %ethod( Under &ook &uilding,
since all a,,licants a&o3e the cut off ,oints are allotted shares, ideally, there should not &e
any ,ressure of unsatisfied de%and in the %arket, leading to a lesser ,ossi&ility of %arket
,rices rising a&o3e the issue ,rice after listing( Thus, IP.s &ased on &ook &uilding %ethod
%ay gi3e fair ,ricing(
$
1.2.2. i!ed "ri#e o"$ion
Price at 2hich the securities are offered allotted is kno2n in ad3ance to the in3estor(
8e%and for the securities offered is kno2n only after the closure of the issue( 1hile
Pay%ent if %ade at the ti%e of su&scri,tion 2herein refund is gi3en after allocation(
2.0. I%O under"ri#ing
Under,ricing of IP.s has &een considered as a ,re3alent ,heno%enon across the 2orld(
1hen co%,anies go ,u&lic, the e:uity they sell in as initial ,u&lic offering tends to &e
under,riced, resulting in a su&stantial ,rice Cu%, on the first day trading( Under,ricing is
generating additional 3alue in the stock 2hen it first &eco%es traded( This leads to
significant gains for in3estors 2ho ha3e &een allocated shares at offer ,rice( 7o2e3er,
under,ricing an IP. results in F%oney left on the ta&leG9 lost ca,ital that could ha3e &een
raised for the co%,any had the stock &een offered at a higher ,rice(
2.1. &'y I%O under"ri#ing
)n initial ,u&lic offering -IP./ issue ,rocess re:uires the acti3e in3ol3e%ent of three key
,layers: the issuing fir%, a single in3est%ent &ank or grou, of in3est%ent &anks -for
under2riting 6 %arketing the IP./, and the in3estors -institutional 6 non9institutional/
intending to &uy shares( The issuing fir% 2ants to o&tain the %a4i%u% ,rice ,er share
-issue ,rice/ 2hile the in3estors 2ant to &uy the shares at a %ini%u% ,rice( In3est%ent
&anks acting as inter%ediaries hel, in %atching the o,,osite e4,ectation of &oth the
,arties( In3est%ent &anks also ,erfor% 3arious other functions like certifying the
econo%ic rationale of the issue to regulatory &odies like the Aecurities 6 $4change ;oard
of India -A$;I/, deciding the issue ,rice, allocating shares to in3estors and other issue
s,ecific res,onsi&ilities(
$%,irical studies ha3e found e3idence that the under,ricing for IP.s of financial
institutions is related to ,ro4ies for asy%%etric infor%ation( )ffer size ( ()egginson*
1++1,, age of the fir% '(uscarella+ 1,8,/, ()egginson* 1++1,, 0ogue+ 1,64D -(conald+
1,62-* Recently 'Islam+ 2010-, conducted e%,irical tests on the relationshi, &et2een
Au&scri,tion rate, issue si5e, industry ty,e and under,ricing using 1!* initial ,u&lic
offerings on the 8haka Atock e4change(
(one. le7t on ta8le 8. Indian companies 7rom 2006-2011
-e.r i"os Under
Issue si/e
(#r,
0e1$ 2oney
(#r,
2003 10# *# 2"+!*("2 11+10(27
2004 +" 1" 442*("# 7*7(4"
200+ 21 14 1**41(+4 7!4(*"
2010 7+ 4! #"!!2(72 1222!(#
2011 +! 1! 10407(!2 10**(17
To$.l 235 156 114456.56 25154.1
178 60 INR
bn 7 29 6
Ta&le no I : (one. le7t on ta8le 8. Indian companies 7rom 2006-2011
2.0. %re:ious Rese.r#'
'Rock+ 1,8/-, is for fir% co%%it%ent offerings( 7e sho2ed that those in3estors
2ho are %ore infor%ed -than the fir% as 2ell as other in3estors/ a&out high under ,ricing
offers cro2d out uninfor%ed in3estors( .n the other hand these %ore infor%ed in3estors
2ithdra2 in issues 2hich are o3er ,riced lea3ing the uninfor%ed in3estors 2ith the
2inner0s curse ,ro&le%( Thus the uninfor%ed in3estors 2ould not ,artici,ate in o3er
,riced issues( 7ence in order to attract such in3estors, the fir% %ust under ,rice its IP.(
(0oug'r.n* 2002/, found that during 1!!091!!" fir%s 2hich 2ent ,u&lic had total
earnings of ?" &illion 2hile they left ?27 &illion on the ta&le e3en though they ,aid ?1+
(
&illion as fees to hi% under 2riters( This %ade Houghran and Ritter ,ro,ound a ,ros,ect
theory for under ,ricing 2here they state that issuers of IP.s lea3e a lot of %oney on the
ta&le &ecause they see a ,ros,ect of higher trading ,rice in the first fe2 days of listing
conse:uently offsetting their loss of 2ealth in under ,ricing the IP.s and in fact resulting
in net gains their 2ealth le3els( <ore i%,ortantly they found that %ost IP.s lea3e little
%oney on the ta&le(
'ol3in+ 2008-+ has addressed the :uestion of 2hether or not ,eriods of high
under,ricing ad3ersely affect ,re9e4isting shareholders( They found that high le3els of
under,ricing are associated 2ith increased share retention, 2hich effecti3ely offsets %uch
of the ,otential cost( .3erall, the ,ercentage of shareholder 2ealth lost is sta&le o3er ti%e,
unlike under,ricing itself( )lso %any factors kno2n to &e related to under,ricing are not
significant deter%inants of the cost of going ,u&lic to ,re9e4isting o2ners(
'Islam+ 2010-+ )naly5es the le3els of under,ricing in initial ,u&lic offerings -IP.s/
and its deter%inants of 8haka Atock $4change -8A$/( Iey trends in the le3els of
under,ricing and o3er,ricing are highlighted out on a year to year, and industry to industry
&asis( Regression )nalysis sho2s that offer si5e and si5e of the co%,any is ,ositi3ely
related to the degree of under,ricing( 7o2e3er age of the fir% and ti%ing of offer 2ere
found to ha3e no significant influence on the degree of under,ricing of IP. in the 8haka
Atock $4change(
'#umar+ 2010- has sho2n the efficiency of IP. issuing %echanis%s using a
sa%,le of Indian IP.s that ta,,ed the ,ri%ary %arket during 200+907 &y taking in to
consideration the total costs the issuers ha3e to face i(e(, including &oth direct as 2ell as
indirect costs( 7e finds that fro% a total cost ,oint of 3ie2 the issuers fare neither &etter
nor 2orse using either &ook &uilding or the fi4ed ,rice offers( Their results also sho2ed
that the issue e4,enses associated 2ith &ook &uilding is %ore than those associated 2ith
fi4ed ,rice offers after controlling for issue si5e and fir% s,ecific characteristics(
'Bansal+ 2012-, analy5e that 2hate3er there is any significant difference in the
%agnitude of le3el of under,ricing of i,os that ,riced through &ook &uild 2ith those that
are ,riced through the fi4ed ,rice o,tion( They found that the %agnitude of under,ricing is
concernedD the &ook9&uild and fi4ed ,rice o,tion ga3e different results( They found
significant difference in le3el of %agnitude of under,ricing in IP.s that ,riced through
&ook &uild 2ith those that are ,riced through the fi4ed ,rice o,tion(
9.0 Ob;e#$i:es
1/ To %easures the IP.s initial ,erfor%ance on first trading day to 3erify that in3estors
can earn ,ositi3e return or not on the close of the first trading day(
2/ To analysis the relationshi, &et2een 3arious factors such as su&scri,tion, issue si5e,
fir%0s age, nu%&er of offered shares, %arket ca,itali5ation and ,ricing %echanis%
and le3el of de,endent 3aria&le i(e( under,ricing(
9.1. Rese.r#' )e$'od
The data for the study 2as o&tained fro% the 2e&site of the ;o%&ay stock $4change
-;A$/ htt,:EE222(&se9india(co%E under the heading of &ook &uilding in IP.A( 1e also
su,,le%ented these data fro% J<I$ 6 Ja,ital line data&ase( The ,eriod for 2hich the
data 2as taken for the study 2as .ct 2007 to +1
st
dec 2011( The data is analy5ed using
%ulti,le linear regressions( )ll the fir% s,ecific 3aria&les are regressed against the
under,ricing to find out 2hich 3aria&les are significant in deter%ining the under,ricing(
<ulti,le linear regressions is done to see if there is a statistically significant difference in
the under,ricing &et2een &ook &uild issues 6 fi4ed ,rice issues &y ,ricing %echanis%s(
9.1.1. )e.sure o1 under"ri#ing
Jonsistent 2ith the standard %ethodology, under,ricing is calculated as the ,ercentage
change fro% the offer ,rice to the closing ,rice in the secondary %arket(
)
%raditional underpricing 9 ''closing price - o77er price- :o77er price- ; 100!
0og underpricing 9 ln 'P1-P0:P0-; 100
9.2. <y"o$'eses 2odels
9.2.1. )e.sure o1 subs#ri"$ion r.$e
The su&scri,tion %easured as the :uantity of shares of the total ti%es had in3estors
su&scri&e after the issue( The natural logarith% of this 3alue is used as it is a standard
,ractice and to re%o3e hetroscadisticity(
<1: There is no statistical significant relationshi, &et2een Au&scri,tion rate and
le3el of under,ricing(
9.2.2. )e.sure o1 issue si/e
The issue si5e is %easured as the total nu%&er of shares offered %ulti,lied &y the offer
,rice( )gain, the natural logarith% of this 3alue is used as a standard ,ractice and to
re%o3e hetroscadisticity(
<2: There is no significant relationshi, &et2een issue si5e and le3el of
under,ricing(
9.2.= )e.sure o1 2.rke$ #."i$.li/.$ion
The %arket ca,itali5ation is %easured as the total nu%&er of shares %ulti,lied &y the
%arket ,rice ,er share( )gain, the natural logarith% of this 3alue is used as a standard
,ractice and to re%o3e hetroscadisticity(
<=: There is no significant relationshi, &et2een %arket ca,itali5ations and less
under,ricing(
9.2.9 )e.sure o1 nu2ber o1 s'.res o11ered
The total nu%&ers of share that a co%,any offered to their issuers in the %arket( )gain,
the natural logarith% of this 3alue is used as a standard ,ractice and to re%o3e
hetroscadisticity(
<9: There is no significant relationshi, &et2een nu%&er of offered shares and
under,ricing(
9.2.6 )e.sure o1 1ir2>s .ge
Bir% age is %easured in years as the difference &et2een the year of IP. and the year of
incor,oration of the fir%(
<6: There is no significant relationshi, &et2een fir%0s age and degree of
under,ricing(
9.2.5. %ri#ing 2e#'.nis2
Bor the ,ricing %echanis% again a du%%y 3aria&le is used to indicate the ,resence of
&ook &uild in i,o under,ricing( The ,resence is sho2n 2ith 3alue e:ual to 1 and 0
other2ise(
<5: There is no significant relationshi, &et2een ,ricing %echanis% and under,ricing
9.=.0 T'e )ul$i"le regressions )odel
*
The i%,act of the inde,endent 3aria&les na%ely, Au&scri,tion rate, issue si5e, %arket
ca,itali5ation, fir%0s age, nu%&er of share offered on the de,endent 3aria&le under,ricing
is %odeled through %ulti,le regression as:
?s$i2.$ion ?@u.$ion:
KKKKKKKKKKKKKKKKKKKKKKKKK
H.LU>8$R K J-1/ J-2/MH.L)L$ J-+/MH.LIAAU$AIN$ J-4/MH.L<ITJ)P
J-#/MH.LAU;AJ J-*/MHL>..BA7)R$ J -7/ PRIJI>L <$J7)>IA< e
6.0 D.$.
The data for the study 2as o&tained fro% the 2e&site of the ;o%&ay stock $4change
-;A$/ htt,:EE222(&se9india(co%E under the heading of &ook &uilding in IP.A( 1e also
su,,le%ented these data fro% J<I$ 6 Ja,ital line data&ase( The ,eriod for 2hich the
data 2as taken for the study 2as .ct 2007 to +1
st
dec 2011(
IPOs on Bom8a. stock 1=change 7rom 2006-2011
-e.r
To$.l Bse
issue
BB %O BB-
Under
BB-
O:er
"o-
Under
"o
-
o:er
A
bbu
ABBO A1"ou A1"oo
2003 10* 10# !1 14 #! +2 7 7 #1(#4 921(42 11+(*7 9+(+
2004 +" +" ++ # 1* 17 2 + +*(4# 92*(+* 1"(0* 9+2(+
200+ 21 21 21 0 14 7 0 0 1!(0! 914(#2 0(00 0(0
2010 7+ 7+ 71 2 47 24 2 0 22(+# 912("# *0(77 0(0
2011 40 +! +" 1 1! 1! 0 1 47(+* 9++(+2 0(00 9*0(4
To$.l 234 235 269 22 166 ++ 11 11 99.23 -21.30 =4.6 -1+.2
*able no 2+ &,)s on -ombay stock ./change from 200122011
6.1. Des#ri"$i:e B$.$is$i#s: The descri,ti3e statistics of the 3arious 3aria&les in the %odel
are as follo2s9
logun log%k logsu& logissu logage lgnoofsh IP.TOP$
<ean 2(77 7(07 1(!4 #(+! 2(70 1*(#2 0(02
<edian 2(7! *(71 1(7! 4(!# 2(70 1#(!+ 0(00
<a4i%u% #(0+ 12(2" 4(#+ !(*4 4(*4 21(24 1(00
<ini%u% 90(++ 4(17 0(00 +(14 0(*! 14(*4 0(00
Atd( 8e3( 1(24 1(!+ 1(2" 1(*2 0("2 1(#1 0(1#
Ake2ness 0(+" 0("+ 0(1! 0("4 0(11 1(2# *(20
Iurtosis 2(4" 2("! 1(72 2("1 +(02 +(77 +!(#2
Par:ue9;era +(01 !(#7 *(1+ 10(04 1(02 2+("+
#14*(#2
Pro&a&ility 0(22 0(0" 0(04 0(00 0(!1 0(00 0(00
Au% 2+0(42 #"7(0+ 1*1(04 447(41 224(4
"
1+71("" 2(00
Au% A:( 8e3( 127(72 +07(1# 1+4("2 217(00 #*(07 1"7(21 1(!#
.&ser3ations "+ "+ "+ "+ "+ "+ "+
Ta&le no +: 8escri,ti3e statistics of the 3arious 3aria&les
6.2. &hecking the data 7or stationarit. o7 the time series:
+
-1
0
1
2
3
4
5
6
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
LOGUNDER
Fig 2: egree o7 underpricing > 7irms to the e=treme le7t in the ? asis 5ere listed in Oct
2008 and those to the e=treme right in ec-2011! ! @ a=is sho5s the degree o7
underpricing in percentage terms!
A!2!1 Cug2en$ed Di#key-uller $es$ s$.$is$i#
>ull 7y,othesis: H.LU>8$R has a unit root
$4ogenous: Jonstant
Hag Hength: 0 -)uto%atic 9 &ased on AIJ, %a4lagK11/
t9Atatistic Pro&(M
)ug%ented 8ickey9Buller test
statistic 9"(#! 0(0000
Test critical 3alues: 1Q le3el 9+(#1
#Q le3el 92(""
10Q le3el 92(#"
M<acIinnon -1!!*/ one9sided ,93alues(
The co%,uted )8B test9statistic -9"(#!/ is s%aller than the critical 3alues 9 D$.uD ( 92(#"#,
92("!7, 9+(#12 at 10Q, #Q, 1Q significant le3el, res,ecti3ely/, therefore 2e can reCect 7o(
It %eans the under,ricing I series doesnRt has an unit root ,ro&le% and the under,ricing
series is a stationary series at 1Q, 10Q and #Q significant le3el(
6.2.2 1stimation the (ultiple regression eBuation -
8e,endent @aria&le: H.LU>8$R
<ethod: Heast A:uares
8ate: 0+E21E12 Ti%e: 21:44
Aa%,le: 1 "+
Included o&ser3ations: "+
@aria&le Joefficient
Atd(
$rror 59Atatistic Pro&(
c 9"!(4#""2 !"(+*1!" 90(!0!4"* 0(+**1
logage 90(0#"*01 0(1742*! 90(++*2** 0(7+7*
logissuesi5e 91(0+!017 0(407*4* 92(#4""21 M0(012!
log%ktca, 0(77"#4! 0(+1#7*+ 2(4*#*10 M0(01*1
lgnoofshare 90(+00"++ 0(1*+*#0 92(2+"27+ MM0(0701
i,oSty,e 0("7"0!+ 0(7#*##0 1(1*0*#4 0(24!*
logsu&sc 90(11"*11 0(10**21 91(1124#0 0(2*!*
R9s:uared 0(#147 <ean de,endent 3ar 2(77*
)dCusted R9 0(4++ A(8( de,endent 3ar 1(24!
,
s:uared
A($( of
regression 1(011

)kaike info criterion 2(!!0
Au% s:uared
resid 74(77 Ach2ar5 criterion +(+1
Hog likelihood 911+(42

7annan9Tuinn criter( +(12
B9statistic #(10 8ur&in91atson stat 1(7!
Pro&-B
statistic/ 0(001
%a8le no : 2 (ultiple linear regressions results
;$ig C AD signi7icance le3el ;; sig C 10D signi7icance le3el E ta8le 3alue t5o tailed
test at A D signi7icance le3el is 'F9 G1!,/- + 'F9 -1!,/-
Coe11i#ien$s:
KKKKKKKKKKKKKKKKKKKKKKKKK
H.LU>8$R K 9"!(4#""290(0#"*01MH.L)L$ 91(0+!017M H.LIAAU$AIN$
0(77"#4!M H.L<ITJ)P 90(11"*11MH.LAU;AJ 90(+00"++M HL>..BA7)R$
0("7"0!+ PRIJI>L <$J7>
5.0. T'e Resul$s o1 <y"o$'eses Tes$ing
5.1.1 Resul$s o1 $es$ing <1
;ased on the %ulti,le linear regression result it 2as found that issue si5e, %arket
ca,itali5ation and nu%&er of share offered has significant relationshi, 2ith le3el of
under,ricing at the ;o%&ay stock e4change( Bir%0s age, su&scri,tion rate 6 ,ricing
%echanis% has no significant relationshi, 2ith le3el of under,ricing( There is no
significant relationshi, &et2een su&scri,tion rate and le3el of under,ricing at #Q
significance le3el -5K91(11/( *herefore null hypothesis 1 is accepted.
5.1.2 Resul$s o1 $es$ing <2
There is a significant relationshi, &et2een issue si5e and le3el of under,ricing at #Q
significance le3el (sig z3 22.55) co%,are to 5 ta&le 3alue at #Q -91(!*/( This indicates that
issue si5e has negati3e i%,act on under,ricing( Therefore null hypothesis 2 is re%ected(
5.1.= Resul$s o1 $es$ing <=
There is significant relationshi, &et2een %arket ca,itali5ation and le3el of under,ricing at
#Q significance le3el -sig 5K 2(4*/( The %arket ca,itali5ation has a ,ositi3e significant
effect on le3el of under,ricing( This indicates that %ore %arket ca,itali5ation effect %ore
under,ricing( Therefore null hypothesis $ is re%ected(
5.1.9 Resul$s o1 $es$ing <9
There is no significant relationshi, &et2een fir%0s age and le3el of under,ricing at #Q
significance le3el -5K (++/( Therefore null hy,othesis 4 is acce,ted(
5.1.6 Resul$s o1 $es$ing <6
There is significant relationshi, &et2een nu%&ers of share and le3el of under,ricing at #Q
significance le3el -5K 92(2+/( The nu%&er of shares has negati3e significant relationshi,
2ith under,ricing( 7ence null hy,othesis # is reCected(
5.1.5 Resul$s o1 $es$ing <5
There is no significant relationshi, &et2een ,ricing %echanis% and le3el of under,ricing
at #Q significance le3el -5K 1(1*/( There fore null hy,othesis * is acce,ted( The ,ricing
%echanis% has no significant effect on le3el of under,ricing(
3.0 Dis#ussion
-
.ur study also gi3es si%ilar results regarding issue size. Issue si5e is ha3ing negati3e
relationshi, 2ith le3el of under,ricing( The result indicating the negati3e relationshi, of
issue si5e in the ,resent study is in confir%ation 2ith result found &y 'e8+ 2010-( <arket
capitalization is ha3ing ,ositi3e relationshi, 2ith under,ricing in the ,resent study( )
finding of the ,resent study is not agree%ent 2ith findings &. 'Richard+ 200/-(
Au&scri,tion rate 6 fir%0s age are ha3ing no significant relationshi, 2ith le3el of
under,ricing in ,resent study( ) finding of the ,resent study is not agree%ent 2ith findings
of 'Rock+ 1,8/-! >u%&er of shares is ha3ing negati3e relationshi, 2ith le3el of
under,ricing in ,resent study( ) finding of the ,resent study is not agree%ent 2ith findings
of '0eite+ 2000-( Pricing %echanis% is ha3ing no significant relationshi, 2ith le3el of
under,ricing( ) finding of the ,resent study is in confir%ation 2ith result found &y
'Bansal+ 2012-!
4.0 Con#luding Re2.rks
This ,a,er e4a%ines the analysis of under,ricing in the Indian stock %arket and
deter%ines the factors are significant in affecting the under,ricing( )%ong the 3aria&les,
issue size, market capitalization and number of share offered 2ere found to &e significant
in affecting the under,ricing( There is negati3e relationshi, &et2een issue si5es 6 nu%&er
of offered share 2ith le3el of under,ricing on one side( .ther side there is ,ositi3e relation
2ith %arket ca,itali5ation and le3el of under,ricing( There is no significant relationshi,
&et2een su&scri,tion, fir%0s age and ,ricing %echanis% 2ith le3el of under,ricing( .n
the &ase of results 2e can say that Indian stock %arket crisis has affected le3el of
under,ricing and their related 3aria&les(
R??R?NC?B:
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1/