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Group Affiliation and the Performance of Initial Public Offerings in the Indian Stock Market

Authors: Subrahmanyam, Marti G
Marisetty, Vijaya B
Keywords: Initial Public Offering (IPO);Underpricing;Business Groups;Certification
Issue Date: Sep-2006
Series/Report no.: FIN-06-026
Abstract: We document the effects of group affiliation on the initial performance of the 2,713 Initial Public Offerings (IPOs) in India under three regulatory regimes during the period 1990-2004. We distinguish between two competing hypotheses regarding group affiliation and a firm’s initial stock market performance: the certification hypothesis and the “tunneling” hypothesis. We show that the underpricing of group companies is higher than that of stand-alone companies, lending support to the tunneling hypothesis. However, on an ex post basis, we find that group-affiliated companies have a higher probability of survival than their stand-alone counterparts: groups appear to support their affiliates to maintain their reputation.
Appears in Collections:Finance Working Papers

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