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Role of Corporate
Edifying role of corporate reputation in
reputation in new issue market: new issue
market
Indian evidence
Amanpreet Kaur 159
USFS, Guru Nanak Dev University, Amritsar, India, and
Received 6 June 2018
Balwinder Singh Revised 10 November 2018
10 March 2019
Department of Commerce and Business Management, Accepted 29 April 2019
Guru Nanak Dev University, Amritsar, India

Abstract
Purpose – The purpose of this paper is to examine the relationship between corporate reputation and initial
public offering (IPO) underpricing for a sample of 269 IPOs hitting the Indian capital market for the first time
during the period ranging from April 1, 2007 to November 8, 2016.
Design/methodology/approach – The study is based on secondary data (of 269 Indian companies going
public) obtained from websites of capital market, Chittorgarh and Securities and Exchange Board of India
(from where prospectus of each company was downloaded individually to extract data on financial variables).
The study devises the technique of multivariate regression analysis to arrive at the results.
Findings – The results of the study reveal that corporate reputation serves as a signal to naive investors that
assures them of issuer company’s credibility, resulting in lower underpricing. In addition to it, the study also
observes the level of gender diversity on Indian boards. It is disappointing to notice low level of female
representation on Indian boards and the improvement if any made in the number of female directors on
Indian boards is due to provisions of new companies’ act, 2013 that mandates at least one women director on
the board of every listed company. Thus, females do not constitute a critical mass on Indian boards.
Research limitations/implications – The current study scrutinizes the impact of corporate reputation on
IPO underpricing only. Furthermore, the study analyzes the underpricing of only book built IPOs.
Incorporating both book built and fixed price IPOs could have provided better insights into the issue.
Practical implications – The study outlines significant implications for managers of issuer company to
portray company’s own reputation as a signal instead of showcasing borrowed reputation of external agents
at the crucial juncture of going public.
Originality/value – Many signals portraying quality of the offering are sent by issuer company in public
arena to make IPO launch a successful event. Among many such signals like underwriting reputation, auditor
reputation, director’s and CEO’s reputation, the corporate audience has started giving more impetus to issuer
company’s own reputation. Thus, financial academia witnessed a paradigm shift from external agents
reputation to internal agent’s reputation and now the loci of interest has shifted to company’s own reputation.
Giving emphasis to corporate reputation seems more relevant in emerging economies like India where naive
investors rely on their own judgments while making investment decision who take clue from various signals
to infer quality of the offer. It is momentous to observe whether reputation of the company acts as a
conspicuous signal to decipher IPO quality. Furthermore, there hardly exists any empirical research directly
examining the impact of corporate reputation on IPO underpricing in the Indian context. Hence, the present
study is a modest attempt to fill this gap in literature.
Keywords Corporate reputation, Underpricing, Firm size, Initial public offering, Indian companies
Paper type Research paper

Introduction
Efficient market hypothesis states that any information about the company gets quickly
absorbed and is reflected through market prices (https://en.wikipedia.org/wiki/Efficient-market_
hypothesis). However, owing to market anomalies, it is a rarely observed phenomenon in
Asia-Pacific Journal of Business
practical life. Uncertainty and information asymmetry finally paves way for the most disliked Administration
but ubiquitous phenomenon, i.e. underpricing (Beatty and Ritter, 1986). Initial public offering Vol. 11 No. 2, 2019
pp. 159-170
(IPO) contenders make all the efforts to avoid leaving money for investors on the very first day © Emerald Publishing Limited
1757-4323
of listing. For this, they portray many clues to users of information in an endeavor to correctly DOI 10.1108/APJBA-06-2018-0098
APJBA price their securities. The offer document is laced with the names of reputed underwriters,
11,2 auditors, bankers and venture capitalists, and many other certification mechanisms are put to
work to earn a fortune during an IPO.
Securities and Exchange Board of India (hereafter SEBI), the Indian market regulator,
gifted the naive investors with a splendid tool of assessment by mandating IPO grading in
May 2007. Accordingly, every issuer company had to obtain their credit worthiness and
160 financial soundness rated by credit rating agencies. Many researchers like Jain and
Sharma (2008), Deb and Marisetty (2010) and Bansal and Khanna (2013) documented the
usefulness of IPO grading experienced in terms of reduction in IPO underpricing. A high
grade meant better quality IPO for retail investors who started using it as a tool to assess
the quality of IPO. But soon within a span of seven years ending on February 4, 2014,
this novelty was withdrawn from the market leaving the investors once again at the mercy
of their own personal assessment about the new companies entering the new issue
market. Innumerable scams in India, to name a few, Satyam scam, default by Kingfisher
airline and most recently fraud by Nirav Modi, have shaken the investors community so
as to restructure their portfolios in terms of safety, which is a hard-to-find ingredient in
Indian stocks.
The reputation of financial intermediaries has been extensively used by IPO contenders to
portray their own quality of offering. It seems to be well-established phenomenon in IPO
literature that the reputation of agents like underwriters, auditors, bankers and venture
capitalists plays a significant role in lowering IPO underpricing (Carter et al., 1998; Bing, 2009;
Beatty and Ritter, 1986; Megginson and Weiss, 1991). But as to how actual reputation of
individual company constitutes a signal to corporate audience and analysis of its impact on
investors has garnered less attention of the researchers, scholars, academicians and corporate
managers. Issuer company differs in many aspects may it be in terms of experience, age,
financial soundness or possession of some unique attributes like corporate reputation, which
has widely been documented to bring competitive advantage to companies possessing them
(Roberts and Dowling, 2002). It is argued that possession of resources like corporate
reputation is expected to boost investor confidence and they readily park their funds in
reputed companies (Anderson and Smith, 2006).
One of the under-examined but rare characteristics of issuer company that has mostly
been unnoticed in research academia pertaining to IPO returns is corporate reputation. The
benefits of a good corporate reputation in the form of lower costs, higher customer retention
and charging price premiums ultimately translating into enhanced financial performance
(Roberts and Dowling, 2002; Lee and Jungbae Roh, 2012) have been widely documented.
But the role of corporate reputation in lowering underpricing has not been extensively
researched specifically in the Indian context. Majority of the research studies examining
the relation between corporate reputation and financial performance have scrutinized
the relevance of a good reputation on both accounting and market-based measures of
performance. Very few studies have directly discerned the impact of corporate reputation on
IPO underpricing (Chen et al., 2008; Chambers and Dimson, 2009; Burhop, 2011).
Corporate reputation is of prime importance to investors as they constitute the most
important stakeholder group. It is argued that satisfying the stakeholders is the tact to remain
intact amidst mounting rivalry. Hence, it is crucial to examine the significance of reputation
among investors as to how the perceptions about company attract investors and lower IPO
underpricing. Second, launching an IPO makes the company publicly visible for the first time.
If the company upholds a good rapport at this crucial juncture, it implies that it has established
credibility in private markets, thereby signaling safety of funds for naive investors. Hence, such
companies can serve as a good investment avenue. Third, despite widespread research exploring
the reasons of IPO underpricing, a good reputation can serve a basis for explaining differences in
IPO underpricing of stocks similar in all aspects. Thus, extricating the impact of corporate
reputation on underpricing can add to current literature by revealing it as an important factor Role of Corporate
affecting underpricing. reputation in
India offers a unique background to conduct research unraveling the relation between new issue
corporate reputation and underpricing. Very few studies have delved into this relation in
emerging economies that are characterized by high degree of information asymmetry and market
lower transparency levels. Indian economy is idiosyncratic due to the presence of fly-by night
entrepreneurs, loose regulatory framework and corporate scandals. Many financial reforms 161
have been introduced to restructure the Indian capital markets dating back from 1992 with the
establishment of SEBI that replaced Controller of Capital Issues; adoption of book building
process in 1995; observance of corporate governance code in 2002; introduction of IPO grading
as a mandatory exercise from May 2007 to its withdrawal in February 2014. All these reforms
intended to make capital markets more secure and transparent for investors. Despite these
endeavors, investors still rely on their personal judgments or advice of brokers to choose the
investment proposal. In such a scenario, it is momentous to observe how investors rely on their
personal assessments about the quality of IPOs. Thus, it is interesting to examine the relevance
of corporate reputation in reducing information asymmetry and underpricing.
Studies on corporate reputation have widely used survey methods to measure it.
Researcher across the globe felt the need for objective measurement of corporate reputation
due to certain limitations existent in the survey-based approaches to capture reputation.
Brown and Perry (1994) and Fryxell and Wang (1994) documented the presence of financial
halo in subjective measurement of reputation which limited its universal applicability. Further
reputation ranking score based on survey method depicts perception of one stakeholder group,
whereas reputation varies from person to person. Thereby, instead of using a subjective
survey-based method to capture the reputation of Indian companies, the current study uses
firm size as a proxy of corporate reputation. Firm size has been used as a proxy to decipher a
company’s financial status and large firm size signals real investment opportunities (Gala and
Julio, 2016). Firm size has been used as a proxy for firm visibility. It is widely documented in
past research that firm size serves as a conspicuous signal and that large firms are expected to
be viewed favorably by stakeholders. Reputation is a hard-to-measure construct and following
the approach of Akabayashi et al. (2005), Lin et al. (2015, 2016) and Dary (2018), firm size is
deployed as a proxy for corporate reputation in the current study.
A large-sized company is noticeable and visible to all its constituents who confidently
interact with it. Firm size serves as a conspicuous clue to even a naive investor who can
perceive it as a positive indicator. Large-sized firms reap economic advantages by conducting
operations on a wider scale (Fiegenbaum and Karnani, 1991). Size speaks of firm’s capacity to
bear market volatility. Large size implies more resources that serve as a cushion for uncertain
times. Such corporates are expected to be viewed propitiously. Dennis and Sharpe (2005) use
firm size as a proxy of borrower bargaining power, thereby implying that large size firms
exhibit some differentiating characteristics for being preferred by lenders.
The study intends to analyze the impact of corporate reputation on IPO underpricing. It aims
to examine whether investors assign weightage to company’s own reputation (instead of relying
on agent’s reputation) at the time of IPO launch so much so as to lower underpricing. The
present study contributes to the literature on IPO underpricing by substantiating corporate
reputation as a significant factor affecting IPO underpricing. The rest of the paper is organized
as follows. The next section presents a review of literature linking reputation to IPO
underpricing, which is followed by the research methodology section. The fourth section
discusses the empirical findings of the study followed by the concluding remarks section.

Literature review and hypothesis development

Stinchcombe (1965) remarked that “liability of newness” is attached to new IPO contenders
with whom public lack familiarity. Since their performance stories lack public documentation
APJBA and their accounting history is not publicly accessible, such companies borrow reputation of
11,2 financial intermediaries to signal IPO quality to investing public. Hence, issuer companies
associate its IPO with reputed agents like underwriters, auditors and bankers which try to
plug in the vacuum between issuer company and prospective shareholder. Beatty and Ritter
(1986) documented that IPOs backed by reputed underwriters face lower short-run
underperformance. Similar finding has been made by other researchers who tested this
162 hypothesis in different market settings. Literature upholds that credibility of other financial
intermediaries like auditor reputation (Beatty, 1989; Bing, 2009), banker’s reputation
(Benveniste and Spindt, 1989) and venture capitalists reputation (Megginson and Weiss, 1991)
also speaks of credit worthiness of IPOs they patronize.
Much later the loci of reputation borrowing for making IPO successful shifted from
external agent’s reputation (like underwriter, auditor and venture capitalist) to internal
actors (like CEO reputation). Gradually the launchers of IPO campaign discovered that
instead of boosting external actors’ reputation, it seems more prudent and rationale to knit
success story of new offer under the shelter of internal actors like CEO, directors and
promoters. Thus, research on IPO underpricing witnessed an offspring of a new strand of
literature linking CEO reputation ( Jian and Lee, 2011; Yang et al., 2011) and director’s
reputation (Sila et al., 2017) with IPO underpricing. Research analyzing impact of board
attributes on IPO underpricing assisted in documenting that governance can be viewed as a
signal of management quality that offsets to a large extent uncertainty and information
asymmetry thereby helping in correct pricing of IPOs (Certo et al., 2001; Certo, 2003).
The trend of using reputation (may it be external agents or internal actors) to lower IPO
underpricing has finally paved way to employ corporate reputation as a signal of IPO quality as
shown in Figure 1. Corporate reputation is an intangible resource possessing the quality of
gaining competitive advantage over others. There exist a plethora of studies testing the
relevance of reputation of external or internal agents; however, there are very few studies
analyzing the impact of reputation of issuer company on underpricing. Hagedoorn (2016)
examined the impact of private equity company reputation of 470 IPOs issued between January
2011 and December 2015 on underpricing in the USA. It was found that underpricing
experienced by reputed company is less to a great extent so much so as to infer corporate
reputation as a certifying factor. Chambers and Dimson (2009) for British companies and
Burhop (2011) for German companies tried to test the relevance of reputation in lowering IPO
underpricing but could not reach any conclusive evidence. Chen et al. (2008) offered a
contradictory view to the widely held notion that reputed company faces lower underpricing.
They concluded that even reputed companies face underpricing due to over-investments in
reputation building activities. The review of literature clearly indicates incongruity on the role of
corporate reputation in lowering IPO underpricing, thereby necessitating further investigation.
When public lacks complete information about the company, they search for inkling, so as to
make a cogent assessment and take logical decision. The very basic urge for sending and
surmising signals arises from the fact that market in any part of the world is characterized by
information asymmetry problem (Beatty and Ritter, 1986). Stakeholders are oblivious to
complete information and lack conclusive information that is possessed by corporate managers.
Signaling theory posits that corporate reputation acts as a signal to lower information
asymmetry and uncertainty between issuer company and investor. Many clues that certify
corporate credibility are offered to prospective investors in order to ameliorate their judgments.

External Internal
Corporate
Agents Agents
Reputation
Figure 1. Reputation Reputation
Transition phase
Source: Authors’ own compilation from review of literature
Among such certifying mechanisms like underwriter’s reputation, auditor quality, reputation of Role of Corporate
CEO and other directors, venture capitalist backing and board characteristics, the reputation of reputation in
issuing company is of prime significance. The concept of getting the credibility assessed new issue
through credit ratings from independent agencies and more recently the concept of IPO grading
was initiated to signal reputation of company offering the securities. The rationale behind market
getting credit worthiness evaluated is to ease decision making by investors taking corporate
reputation as a clue instead of relying on borrowed reputation. Corporate reputation serves as 163
an important uncertainty-reducing mechanism. The arguments indicate that having a good
corporate reputation benefits issuing company by reducing IPO underpricing giving way to the
formation of following hypothesis:
H1. Corporate reputation is inversely related to IPO underpricing.
A major concern in reputation literature is its measurement. Prior research has widely used
qualitative measures to capture corporate reputation but such measures have often been
criticized on grounds of lack of comprehensiveness as these methods incorporate opinions of
just one stakeholder group; being unfit for scientific research; biased, attributed to the
presence of financial halo; and limited applicability (Brown and Perry, 1994; Fryxell and
Wang, 1994). This motivated the researchers all over the world to develop various proxies to
quantify reputation in a manner other than survey method. Thereby, instead of using a
subjective survey-based method to capture the reputation of Indian companies, the current
study uses firm size as a proxy of corporate reputation. It is widely documented in the past
research that firm size serves as a conspicuous signal and that large firms are expected to be
viewed favorably by stakeholders. Following the approach of Akabayashi et al. (2005), Lin
et al. (2015, 2016) and Dary (2018), firm size is deployed as a proxy for corporate reputation
in the current study.

Research methodology and data collection

The period of study began from April 1, 2007, as the financial year 2007–2008 witnessed a
major reform in Indian primary market through introduction of mandatory IPO grading by
SEBI. Furthermore, Indian primary markets witnessed a gloom period after demonetization
of Indian currency. Therefore, the pace of IPO launch slowed down drastically after
November 8, 2016. Thus, the entire list of book built IPOs hitting the Indian capital market
during this time period (obtained from website of Chittorgarh (www.chittorgarh.com) or
capital market or SEBI) forms the sample for the study. The technique of multiple regression
is applied on information collected from 269 IPOs (reduced sample due to unavailability of
data) hitting the capital market for the first time from April 1, 2007 to November 8, 2016. The
data is collected on different variables which are categorized into three sub-headings.

Dependent variable
Since the study intends to capture the impact of corporate reputation on IPO underpricing, IPO
underpricing is taken as dependent variable, which is calculated as the first day closing price
minus the offer price divided by the offer price (Ritter, 1984; Certo et al., 2001). The data on the
offer price and the first day closing price are collected from the website of capital market.

Independent variable
In order to measure corporate reputation, firm size is used as its proxy (Akabayashi et al.,
2005; Lin et al., 2015, 2016; Dary, 2018). The information on total assets (in Rs. Crore), owned
by IPO contenders in the immediate financial year ended before going public, is extracted
from IPO prospectus, i.e. compulsory filing made by companies offering their securities to
public as per SEBI norms.
APJBA Control variables
11,2 Past studies suggest inclusion of IPO attributes like IPO Size (as measured by the amount in
Rs. Crore) raised by the issuer company through IPO, and age (as measured by difference
in date of incorporation to the issue offer date) which are expected to cast a negative impact
on underpricing. The information related to IPO size and issuer company’s age is extracted
from the prospectus or from the websites of Chittorgarh (www.chittorgarh.com) or capital
164 market, which serve as a reservoir of information related to Indian IPOs. Pugel and White
(1988) document that investors are likely to perceive older and well-established companies
favorably, thus age of a company and underpricing are expected to depict a negative
relation. The quantum of funds (i.e. issue size) being raised by the issuer company
are expected to generate a negative impact on IPO underpricing (Shah, 1995). To control the
effect of these variables on underpricing, it is necessary to include company age and IPO
size in the regression model.
Oversubscription (extracted from www.capitalmarket.com) and listing delay (in days)
calculated as the time gap between date of listing and issue close date are expected to
generate a positive impact on underpricing (Shah, 1995). More delay in listing of new
securities increases IPO underpricing (Shah, 1995). Oversubscription is found to drive
underpricing in a positive direction, as higher the demand for securities, higher is the level of
underpricing (Shah, 1995). A large board size and inclusion of female directors are expected
to generate a negative impact on underpricing (Kaur and Singh, 2015). The information
related to the number of female directors and board size was extracted from the
“management section” of offer document that was downloaded individually for each
company. The presence of females on the board of issuing company signal quality and
investors perceive them favorably so much so as to leave an impact in reducing the
short-run underpricing. Thus, gender diversity is introduced as a control variable as
literature related to IPO underpricing documents that the female presence lowers IPO
underpricing (Costa et al., 2013; Tanaka, 2014; Kaur and Singh, 2015).
The regression model being tested in the current study is represented as follows:
IPO underpricing ¼ ai þb1 Corporate reputationi þb2 Firm agei

þb3 Listing delayi þb4 Oversubscriptioni þb5 Issue sizei

þb6 Board sizei þb7 Number of female directorsi :

Empirical findings
The descriptive statistics of companies hitting the capital market for the first time between
April 1, 2007 and November 7, 2016 are depicted in Table I. The mean level of underpricing
experienced by Indian companies over the years is 0.13. The IPO characteristics are

Variables Minimum Maximum Mean SD

Issue size (in Rs. crore) 14 15,475 552.39 1,467.28

Oversubscription 1 159 16.46 25.277
Corporate reputation 92 925,222 25,844.13 93,220.99
Listing delay (in days) 8 174 18.19 13.02
Firm age (in days) 593 39,893 6,102.10 5,499.35
Underpricing −0.34 1.24 0.13 0.23
Board size 4.00 20.00 8.00 2.33
Table I. Number of female directors 0.00 4.00 0.5725 0.71716
Descriptive statistics Source: Authors’ own calculations
reflected through, i.e. oversubscription, listing delay and issue size. Oversubscription rate Role of Corporate
ranges from 1 to 159 times. The average oversubscription rate of Indian IPOs is 16 times. reputation in
SEBI, the Indian market regulator, attempts to ensure that the time gap between issue close new issue
date and listing date is minimized. However, the sample statistics reveal that it takes at least
8 days for Indian companies to begin trading at a stock exchange and the maximum delay is market
found to be 174 days. The average delay is 18 days. Indian companies usually tap huge
amount of funds from new issue market. The average amount of funds procured from public 165
through IPO is Rs. 552.39 crore. Firm-related characteristics like company age reveal
attributes that companies meet their initial requirement of funds through private sources as
companies wait to get old and build a good reputation among stakeholders so as to ensure
IPO launch as a successful event (Diamond, 1989). The study uses firm size as a proxy of
corporate reputation which is captured through pre-IPO assets, i.e. total amount of assets
owned by IPO contender before going public. It is found that the mean value of reputation as
measured by firm size is Rs. 25,844 crore. Natural logarithm of this variable is taken for
further analysis as it shows very high standard deviation. The number of board members
hoisting IPO ranges from 4 to 20, where the average board size is found to be eight
members. Indian companies portray reluctant attitude in recruiting women directors to
board positions. It is with the advent of new companies’ act, 2013, that mandates one women
director, which has finally opened the door for gender egalitarianism.
Table II gives a glimpse of number of female directors on Indian corporate boards. As the
sample period of study comprises of both pre-mandatory and post-mandatory regime of
new companies act, 2013 that mandates appointment of one women director on board seats,
it is interesting to observe that majority of Indian companies do not follow the global move
of ensuring gender equality in the corporate sector, thereby indicating low recruitment of
females to top management positions. It is observed that 54 percent of the sample companies
are male dominated. This finding is obvious as majority of the companies that launched an
IPO fall into the pre-implementation phase of new companies act, 2013. Unlike developed
nations, Indian economy is still struggling to ensure gender equality in corporate sector.
Merely 2 percent of sample companies have assigned females a role of more than simply
being a token to constitute a critical mass as defined by Torchia et al. (2011). The finding
clearly reveals unwillingness on the part of male-dominated Indian boardrooms to give
sufficient space to their female counterparts voluntarily. It is interesting to observe that just
one company named Monte Carlo Fashions Limited, which entered the primary market on
December 3, 2014, appointed four females to launch their IPO campaign. It is worthwhile to
mention that Central bank of India, Tara Jewels Limited and SH Kelkar & Company Limited
went beyond the compulsory restrictions of appointing one female to recruit three females
on board chairs.
Table III shows year-wise number of book built IPOs hitting the Indian capital market.
Year 2007–2008 witnessed maximum number of IPOs launched by Indian companies. Only
one book built IPO entered the new issue market in 2013–2014, as it was the period of

Number of female directors Number of companies Percent

0 145 53.9
1 99 36.8
2 21 7.8
3 3 1.1 Table II.
4 1 0.4 Number of female
Total 269 100.0 directors on Indian
Source: Authors’ own calculations corporate boards
APJBA Years Number of IPOs Mean underpricing
11,2
2007–2008 72 0.25
2008–2009 14 0.08
2009–2010 39 0.07
2010–2011 50 0.11
2011–2012 32 0.007
166 2012–2013 11 0.03
2013–2014 1 0.15
2014–2015 8 0.23
Table III.
Number of IPOs 2015–2016 24 0.06
hitting the Indian 2016–November 7, 2017 18 0.17
capital market over Total 269 0.13
the ten-year period Source: Authors’ own calculations

implementation of new companies act, 2013 that brought many structural and governance
reforms. Just Dial Limited was the only company that raised funds from public amidst
restructuring phase of Indian corporate sector. The average level of underpricing experienced
by IPO contenders during ten-year period is shown in Table III.
The results of multivariate regression are depicted in Table IV. Model 1 captures the
impact of control variables on underpricing. Consistent with the findings of Lee et al. (1996),
listing delay shows a negative relation with IPO underpricing ( p-value 0.07 o0.10).
However, IPO size fails to generate a significant impact on underpricing. Shah (1995) holds
that underpricing is positively influenced by the level of oversubscription. The results also
capture similar relation ( p-value 0.00 o0.01). A large board provides access to more
resources, thereby promoting quality decision making, which acts as a signal of
competiveness for investors. It is expected that companies with large board will ensure good
governance; hence, such companies are viewed favorably thereby lowering underpricing.
However, board size depicts a negative but insignificant impact on underpricing ( p-value
0.45 W0.10). The presence of females on the board speaks of gender egalitarianism that is
viewed as a positive signal lowering underpricing. Although the results indicate existence of
a negative relation, it is found to be statistically insignificant ( p-value 0.12 W0.10).
No significant relation between firm age and underpricing is concluded. The model overall
captures 52 percent variation in underpricing.

Model 1 Model 2
Variables Coefficients t-value ( p-value) Coefficients t-value ( p-value)

Constant 0.07 2.13** (0.03) 0.16 3.52*** (0.001)

Firm age 7.646E-7 0.51 (0.61) 1.764E-6 1.17 (0.24)
Listing delay −0.001 −1.85* (0.07) −0.001 −2.08** (0.04)
Oversubscription 0.005 16.80*** (0.00) 0.005 17.19*** (0.00)
Issue size −4.635E-6 −0.81 (0.42) 1.346E-6 0.22 (0.82)
Board size −0.003 −0.75 (0.45) 0.001 0.20 (0.84)
Number of female directors −0.02 −1.54 (0.12) −0.02 −1.41 (0.16)
Corporate reputation −0.02 −2.82*** (0.005)
Table IV.
Multivariate Adjusted R2 0.519 0.531
regression analysis F-statistics 49.17*** 44.41***
taking underpricing Notes: *,**,***Significant at the 10, 5 and 1 percent levels, respectively
as dependent variable Source: Authors’ own calculations
Independent variable is introduced in model 2. Pre-IPO assets connoting firm size which is used Role of Corporate
as a proxy of corporate reputation is found to have a significant impact in lowering uncertainty reputation in
among Indian investors. Market participants feel more secure about the future performance of new issue
reputed companies as reputation itself serves as a symbol of guarantee to them. Thus, investors
feel safe in parking their funds in reputed companies as such IPOs of reputed companies market
are expected to exhibit lower volatility on the first day of listing (Hagedoorn, 2016). The findings
clearly reveal negative impact of reputation on underpricing ( p-value 0.005o0.01), 167
thereby implying that reputed companies face lower underpricing supporting H1. The
control variables depicted similar relation with underpricing as in model 1 except that the
negative impact of listing delay on underpricing becomes significant at the 5 percent level
( p-value 0.04o0.05) as compared to earlier 10 percent level in model 1. The model explained
53 percent variation in underpricing.

Conclusion
The impact of corporate reputation is rather an unexplored area of research in the context of
IPO underpricing. The current study investigates whether corporate reputation affects IPO
underpricing. Using a sample of 269 IPOs hitting the Indian capital market from April 1,
2007 to November 7, 2016, it is found that corporate reputation (measured by firm size) does
generate a significant influence on investor’s perception. The results reveal negative relation
between corporate reputation and IPO underpricing. It can be inferred that shareholders
value reputation of issuer company along with other certification mechanisms like
underwriter reputation, auditor quality, reputation of banker, merchant banker, venture
capitalist backing, CEO reputation and other board attributes. The evidence indicates a
gradual shift from external and internal agent’s reputation to corporate reputation. It
is hereby argued that quality of “offer” is surmised from the quality of “offeror.” Hence, it is
imperative to build a good name in private domain and establish sound credit history
among private lenders before knocking the public door. Issuer company’s own reputation
has finally emerged as a certifying factor that can lower IPO underpricing and can act as a
substitute for borrowing reputation from outsiders. More reputable companies are
characterized by lower initial returns.
The study is unique as it is the first known study directly examining the impact of
corporate reputation on IPO underpricing in Indian markets. There exist a plethora of studies
deciphering the impact of underwriter reputation, auditor reputation on underpricing of Indian
IPOs (Khurshed et al., 2014), but hardly any study has documented corporate reputation as a
certification mechanism in new issue market. Moreover, the study uses firm size as a proxy of
corporate reputation which has not been used as a measurement technique to capture
reputation of Indian companies. Developed nations have proved the ingenuity of a good
corporate reputation in financial markets. But there is limited evidence asserting this
proposition in emerging economies like India. Although Chinese market documented worth of
good corporate reputation in lowering underpricing (Xuan and Yunxia, 2016); however, Indian
markets have attracted less research on this issue. Moreover, the study also observes the level
of gender diversity on Indian boards. It is disappointing to envisage low level of female
representation on Indian boards.
The key findings of research carry significant implications for managers of IPO
contenders that instead of borrowing reputation from external agents (like underwriters,
auditors, bankers, venture capitalist), they can shift to corporate reputation as a certification
mechanism to indicate quality that can lower short-run underperformance. It suggests that
companies should endeavor to save its resources by not borrowing the names of external
actors to facilitate their IPO launch in lieu of high commissions paid to them. By upholding a
good credit history and by indulging into reputation building activities like CSR, good
governance, delivering quality products and services and timely repayments of dues, the
APJBA issuing company can boost its reputation in competitive markets. The implication for the
11,2 investors is that they can use corporate reputation as signal to assess the quality of IPOs
and as a basis to demarcate the poor quality IPOs from the good ones.
One of the limitations of the present study is that the effect of corporate reputation on
IPO underpricing has been examined. Further research can scrutinize the impact of
reputation on the long-run stock returns of Indian companies. Second, the study analyzes
168 the underpricing of only book built IPOs. Incorporating both book built and fixed price IPOs
could have increased the sample size and provided better insights into the issue. Future
research may analyze the impact of reputation of both book built and fixed price IPOs on
underpricing. Third, the current study uses total assets as a proxy of corporate reputation;
but total assets may be minimal for knowledge-based firms that own more intangible
resources which are not recognized in the book, hence, this measurement may be misleading
for firms which are knowledge based.

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Corresponding author
Amanpreet Kaur can be contacted at: aroraaman26@yahoo.co.in

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