The long-run performance of SME IPOs in

India: empirical evidence from Indian stock

market
Nischay Arora , Balwinder Singh
Journal of Asia Business Studies

ISSN: 1558-7894

Article publication date: 15 June 2020

Issue publication date: 17 February 2021

Abstract
Purpose
The purpose of this paper is to study the pattern of long-run performance of small and medium
enterprises (SMEs) initial public offerings (IPOs) and examine the firm- and issue-related
determinants of long-run performance of SME IPOs in India.

Design/methodology/approach
The 3 6, 9 and 12 months share returns of Indian SME IPOs is studied using event time
methodologies, i.e. buy and hold returns, cumulative abnormal returns and wealth relatives on a
sample of 375 SME IPOs issued during February 2012 to May 2018. Additionally, ordinary least
square regression has been used to investigate the determinants of long-run performance of SME
IPOs on a reduced sample of 104 because of non-availability of price observations.

Findings
The findings reveal that Indian SME IPOs exhibit long-run overperformance contradicting the
international evidences of underperformance, and this overperformance is significantly evident
using buy and hold abnormal return (BHAR). Furthermore, based on the divergence of opinion
hypothesis, fads theory and windows of opportunity hypothesis, the results reveal that on one
hand, issue size and oversubscription negatively affect BHAR, while on the other hand, auditor
reputation, underwriter reputation, hot market, underpricing, inverse of issue price, profits prior
to listing positively affect long-run performance. However, firm age, firm size, debt equity ratio,
volatility and long-run performance computed through BHAR lacks significant relationship.

Research limitations/implications
The study relied on event time methodology of measuring aftermarket performance of one year
because of the limited availability of price offerings. Hence, the study could be extended to
analyze aftermarket returns over a period of three to five years to enable reaching the vivid
conclusions. Calendar time methodology may also be used to compute abnormal returns.
Practical implications
The results based on the study provides an implication to the investors by providing them an
opportunity to bank higher long-run returns by engaging in active and timely trading strategies.
Nevertheless, the results also show that investors should be cautioned while taking investment
decisions.

Originality/value
The study contributes to rising body of international literature by analyzing the larger and recent
sample of IPOs issued from 2012 to 2018 listed on SME exchange.

Keywords
 Firm- and issue-related characteristics

 SME IPOs

 Event time methodologies

 Long-run performance

Acknowledgements
The authors sincerely acknowledge the anonymous reviewers of this paper and Editor-in-Chief
of the journal for their insightful and constructive comments.

Citation
Arora, N. and Singh, B. (2021), "The long-run performance of SME IPOs in India: empirical
evidence from Indian stock market", Journal of Asia Business Studies, Vol. 15 No. 1, pp. 88-
109. https://doi.org/10.1108/JABS-10-2019-0305
Download as .RIS

Publisher
:
Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited

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