Firm Financing through IPOs: A Study of Causal Variables Responsible for Under-Pricing

Abstract

One major source of business financing is through Initial Public Offerings (IPOs). Historically, IPOs received high initial first day gains compared to the market performance. These gains reflect external factors and not the company's true value, thereby suggesting the under-priced IPO. The recent researches on IPOs in different markets for different industries in various countries, have focused on under-pricing and show that the under-pricing is evident in case of book-building route as well as fixed price-band offers. This study attempts to identify causal variables behind high initial gains for Indian IPOs using earlier researches and testing them over a sample of Indian IPOs to examine the influence of non-fundamental factors and signalling effects on under-pricing

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