South Asian Journal of Management

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Determinants of Pricing IPOs:An Empirical Investigation


Affiliations
1 Indian Institute of Management (IIM), Lucknow, India
2 Vinod Gupta School of Management (VGSOM), Indian Institute of Technology (IIT), Kharagpur, West Bengal 721302, India
     

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This paper aims to investigate the pricing of IPOs by using market average P/E and issue mechanism, delay in listing along with a set of financial and signaling information. A database of 172 IPOs issued during the period 2002-2007 in India is considered for the study. The result indicates that market P/E as measured by BSE-Sensex (i.e., P/E at the time of issue) is significant and positive in affecting both offer price and list price. We lend support to the view that book building mechanism command higher prices for the IPOs than fixed priced offer. Other variables, i.e., book value per share, earnings per share, IPO activity period, investment bank prestige, and post issue promoter group retention are also significant and positive in evaluating IPO price. We find that listing delay is adversely affecting the list price. Subscription rate is also found positively associated with list price.
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  • Determinants of Pricing IPOs:An Empirical Investigation

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Authors

Seshadev Sahoo
Indian Institute of Management (IIM), Lucknow, India
Prabina Rajib
Vinod Gupta School of Management (VGSOM), Indian Institute of Technology (IIT), Kharagpur, West Bengal 721302, India

Abstract


This paper aims to investigate the pricing of IPOs by using market average P/E and issue mechanism, delay in listing along with a set of financial and signaling information. A database of 172 IPOs issued during the period 2002-2007 in India is considered for the study. The result indicates that market P/E as measured by BSE-Sensex (i.e., P/E at the time of issue) is significant and positive in affecting both offer price and list price. We lend support to the view that book building mechanism command higher prices for the IPOs than fixed priced offer. Other variables, i.e., book value per share, earnings per share, IPO activity period, investment bank prestige, and post issue promoter group retention are also significant and positive in evaluating IPO price. We find that listing delay is adversely affecting the list price. Subscription rate is also found positively associated with list price.