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Performance Analysis of IPOs in the Indian Market

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 Performance Analysis of
IPOs in the Indian Market

1
Rishi S Saluja Abstract
Shikhar Dam 2 Public issue or Initial Public Offerings (IPOs) has
3
Pradeepta Kumar Samanta, Ph.D. become a very popular way of raising finance in
India. The performance of these IPOs fluctuates over
a period and investors, in the past, have incurred huge
losses by investing in them. While IPOs offer
appreciable returns on the listing day, their long-term
performance is generally poor. In this study, the long-
term price performance of 117 IPOs released over the
period of 2009-2013 by way of market abnormal
excess returns (MAER) was done to identify the
factors which govern their performance. The research
concludes that the listing day price and times
subscribed are always positively correlated
irrespective of the industry or sector. IPOs released in
any sector, age of the firm, and times subscribed show
positive correlation for the entire sample.
Keywords : Public issue, IPOs, Indian Market,
Performance, MAER
Introduction
Raising fund is a difficult problem faced by any
organisation. Entrepreneurs need capital to fund
projects, to pay employees and other miscellaneous
purposes. Fund can be raised from different sources
like banks, institutional/angel investors, finance
1 companies, and debentures etc. All these ways have
Associate Solution Advisor, Deloitte USI,
Hyderabad
an element of risk associated with them. The rates of
rishisaluja278@gmail.com interest to be paid take a huge toll on a company's
2
Management Trainee, finances. Initial Public Offering (IPOs) has proved to
Shapoorji Palloonji Co. Pvt. Ltd., Gurgaon be a much safer alternative to raise fund.
shikhardan@gmail.com
3 An IPO immediately enlarges the ownership base of a
Associate Professor, School of General
Management (SoGM),
company and infuses large amounts of capital.
National Institute of Construction Besides creating new financing opportunities for a
Management and Research (NICMAR), Pune. company, an IPO increases the firm's public exposure
Email: pksamanta@nicmar.ac.in. as well. IPOs present a cheaper fund raising option

than debts. The investors become owners of a
part of the company that their portion of the
purchased shares represents. Though dilution
of ownership is a major disadvantage of
garnering fund through IPO, the capital market
route has remained an alluring alternative
source of fund.
The present study aims to analyse the IPOs
from an investor's point of view. After the
economic crisis of 2008, banks were not able to
lend enough money to satiate the financial
needs of the national players. This led to an
inundation of IPOs in the country. In fact,
public issue has become the most popular way
of raising finance in India. The performance of
these IPOs fluctuates over a period, and
investors, in the past, have incurred huge losses
by investing in them. It has been observed that
while IPOs generally perform well on the
listing day, their long-term price performance
is poor and thus needs to be thoroughly
investigated for future action. This study is
based on various researches conducted in the
past about the performance of IPOs, their
pricing mechanisms, the mispricing by
investment banks, the hot and cold market
periods and other such issues. The under-
pricing and overpricing of IPOs has been a
much debated subject in the financial circles of
the world.
This study is focused on understanding the long
term performance of IPOs by way of excess
returns and is determined to find out the factors
which significantly influence it. The research
also analysed sector specific IPO performance
in the market. The focus was on firm specific
factors, like age of the firm and market
capitalisation as determinants of price
performance. The study can help in
understanding the specific characteristics of an
issue like size, delay, price which may
influence the long term returns.
Literature review
The literature reviewed over the last 15 years
related to the short-term and long-term
49
performance of IPOs, their pricing
mechanisms and performance determinants to
develop a contextual understanding and to find
suitable methodologies for our study.
Ramesh and Dhume (2015) discussed about
how IPOs are a major source of funds for
companies, and how they have become a very
popular way of raising finance. The paper deals
with the pricing phenomenon of IPOs and aims
to find out whether they are on an average,
overpriced or under-priced. The authors
selected a sample of 150 IPOs in India for their
analysis. The study concluded that the IPOs are
usually overpriced and the overpricing is
frequent in the long run. Kumar (2015) studied
about the post issue performance of IPOs,
especially the pricing performance. The author
observed that the retail investors participated in
the IPO for the listing day gains only which
hampered their long-term performance. The
paper studied both short and long term
performance of 211 Indian IPOs over the
period 2007-2012 and noted that the investors
who were investing in IPOs through direct
subscription had earned a positive market
adjusted return throughout the period of study.
But the investors who bought shares on the IPO
listing day earned negative returns up to 12
months from the listing date and were expected
to earn positive market-adjusted return
thereafter.
Zarafat and Vejzagic (2014) investigated long
term performance of IPOs listed on the Bursa
Malaysia. The author studied 6-month, 1-year,
2-year and 3-year returns of the IPOs listed on
the Bursa Malaysia over the period 2004-2007.
The sample selected comprised 166 different
IPOs in Malaysia. The study of long-term
returns revealed that first-day return, size, and
market volatility are three factors which
significantly affect the one-year return. These
three variables along with book value to market
value ratio are determinants of two-year return.
Finally, three-year return is influenced by the
50
first-day return, book value to market value
ratio, and gross proceeds. Chauhan (2011)
discussed the initial returns generated by the
IPOs over and above the benchmark Nifty on
the listing day as well as the long-term
performance of these IPOs in a five year period.
The study also tried to identify the different
factors that help in explaining the performance
behaviour of these IPOs. The sample selected
comprised all the IPOs listed on the National
Stock Exchange during the period from Jan
2000 to Dec 2010. The results documented
show that the frequency of IPO release is high
in bullish periods. The IPOs perform well on
the listing day but underperform when
observed for a long-term period.
Sahoo and Rajib (2010) in their study
highlighted that IPOs are underpriced on the
listing day but underperform thereafter in the
longer run as compared to market performance.
The paper studies the performance of IPOs for a
period of 36-month. The paper also aims to
find how useful the IPO characteristics are in
understanding the post-issue performance. The
sample selected was 92 IPOs listed in India
during the 2002-2006 periods. The study found
that the initial day return, offer size, leverage at
IPO date, ex-ante uncertainty, and timing of
issue were statistically notable in influencing
underperformance. However, there is no
evidence indicating that the age of the IPO firm,
rate of subscription, promoter group's
retention, and price-to-book value impact the
long-run underperformance. Kumar (2009)
specifically dealt with a new book building
mechanism in IPO pricing. The book building
mechanism was adopted to fix more efficient
prices for an IPO. The paper analyzed both the
short term and long term performances of the
book built IPOs. The documented results in the
paper showed that the book built IPOs were
underpriced because of the positive listing day
returns. The paper also documented that up to
24 months from the listing day, the IPOs
ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017
outperformed the market. However, after those
24 months, they generated negative returns.
Deb and Mishra (2009) studied several issues
especially long term performance of 184 IPOs
from April 2001 to March 2009. The paper
concluded that the only significant positive
return an IPO generates is on the listing day.
The returns don't annul but get reversed within
10 days. Sehgal and Singh (2008) studied the
factors which dictate the level of under-pricing
and long-term performance of IPOs. The
authors selected a sample comprising 438 IPOs
listed on the Bombay Stock Exchange during
the period from June 1992 to March 2001. The
average under-pricing was found to be 99.2%
which was very high when compared globally
at the time. The factors which significantly
influenced were age of the firm, listing delay
and oversubscription. The authors noted that
Indian IPOs do not underperform in the longer
run and attributed this to the overreaction
hypothesis.
Kurtaran and Bunyamin (2008) analyzed the
post issue operating performance of IPOs at the
Istanbul Stock Exchange as a developing
market. The paper also examined the
relationship between managerial ownership
and post issue operating performance. The
study was based on 205 IPOs listed at the
Istanbul Stock Exchange in the years 1992-
2000. The paper documented a positive
ownership between the post issue operating
performance and management ownership
structure after the issue. The authors found no
relation between the post issue operating
performance and under-pricing level. Market
expectations were tested by the means of
market to book ratio and price earnings ratio
and the paper indicated a post issue decline in
both ratios.
Garza (2008) studied the relation between firm
maturity and firm's performance at their IPO
and post IPO returns. The sample selected
contained 9400 IPOs listed on NASDAQ and

NYSE. The study found that the firms aged
below nine years mostly underperform and get
delisted. It also found that firms lose efficiency
as they age but reap greater returns at the time
of maturity.
Sohail and Nasr (2007) studied the short term
and long term performance of IPOs listed on
the Karachi Stock Exchange. The sample
included 50 IPOs listed during the period 2000
to 2006. The paper analysed the performance
by means of level of under-pricing which was
found to be 35.66% on average. The authors
also calculated the returns one year after listing
and found them to be negative. The paper also
studied the factors which determine the level of
under-pricing and found that ex-ante
uncertainty, offer size, market cap and
oversubscription significantly influence it.
Gounopoulos et al (2007) studied the price
performance of IPOs in the Cyprus Stock
Exchange during the period 1999-2002. The
sample selected had 75 IPOs listed on the
Cyprus Stock Exchange. The authors studied
the difference between the listing price of the
IPOs and their equilibrium market price. The
results indicate that Cypriot IPOs have large
positive initial returns, especially at the end of
the first trading day. Long term results, not
considering the first day returns, are much
lower and in many cases even negative. Both
these trends agree with the outcomes of the
international empirical studies. The study
found that increase in the general index of the
stock exchange between the last day of public
offerings' period and the first trading day (time
lag), the reputation of the company's
underwriters, the firms issue size and the
company's history affect the initial
performance of IPOs.
Khurshed et al (2007) aimed to identify the
factors that influence the long run performance
of IPOs. The sample selected for the study
comprised 240 IPOs of non-investment trust
companies listed in the UK over the period
51
from January 1991 to June 1995. The authors
assumed that the long-term performance of an
IPO is a function of pre-IPO factors like
managerial decisions and firm's performance
prior to going public. The results found a
positive relationship between size of the firm
and long term performance. The reputation of a
firm was found to significantly impact the
long-term performance. The results also
indicated that the way a company is run; its
multi-nationality and the percentage of equity
issued are key predictors of IPO performance.
Research objective
The study is aimed at assessing and comparing
the price performance of IPOs in the long-run.
The performance has been evaluated by
calculating market adjusted returns of IPOs.
The performance on the listing day has been
chosen as an indicator of long term
performance. The study has the following
objectives:
1. To measure the initial listing performance of
IPO for the long-run, that is from the date of
offer to the public to the date of their first
listing on the National Stock Exchange.
2. To identify and compare the independent
factors with dependent factors.
3. To study the trends in infrastructure IPOs
with respect to IPOs of other sectors during
the study period.
Research methodolgy
The sample size of 117 IPOs ranging from year
2009-13 was selected, which was further
divided into two sectors, namely, secondary
and tertiary, and then subdivided into 19 major
industries. This study analyses the entire
sample first and then focuses on two sectors for
independent evaluation of their long-term
performance. Based on this, the research tried
to find out how the IPOs fared in the long run,
which sector posted better performance, and
how much profitable it is to release the IPOs in
that sector based on the initial day returns. The
52 ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017

main focus was on infrastructure IPOs, which
include construction, real estate, power and
energy sectors, and their performance was
compared with that the IPOs related to the other
sectors. The analysis uses descriptive statistics,
correlation and regression analysis along with
trend analysis to conclude the research.
Sources of data: Secondary data is used to
analyse the price performance of IPOs in the
Indian market. The different information
regarding the independent variables and other
characteristics of IPOs for the listing day has
been taken from the National Stock Exchange
of India, www.moneycontrol.com and
www.chittorgarh.com

Year Number of IPOs released Number of IPOs considered

2009 21 20
2010 71 55
2011 41 29
2012 12 10
2013 6 3
Source: Compiled by authors
*Reasons for elimination: IPOs missing or incomplete after-market price data; IPOs missing financial
and other issue specific information.
Table 2: Industry-wise IPO Distribution
IPO Sector IPO Released
Media & Communication 4
Telecommunication 2
Construction 17
Engineering 3
Power & Energy 15
Precious Metal 7
Metals & Manufacturing 10
Pharmaceuticals 4
Healthcare 2
Tourism 2
Banking & Finance 14
Transportation & Logistics 4
Textiles 6
Education 4
Service 2
IT 7
Chemical 2
Miscellaneous 6
Retail 8
Source: Compiled by authors

Long term price performance
The long-term price performance has been
calculated by assessing the performance of the
IPO over a period of 36 months. The
performance calculation is employed in the
computation of short term performance. The
raw returns of the stock have been taken at
monthly intervals over a 36-month period.
These returns have then been again adjusted for
market performance by comparing them with
NIFTY Index. The standard formula for
calculating the returns at different time
intervals is used as,
Where
Rit= Raw return of stock i at time t
Pit = Price of share i at time t.
The price here means closing price of the
share on that day.
Pio= Price of stock i at the time of offer.
Now market return is calculated as,
Where
Rmt= Market return or Return on NIFTY
index at time t
Imt= Value of NIFTY index at time t
The value here is the closing value of
the index on that day.
Imo = Closing value of NIFTY Index on offer
closing day
The market adjusted excess return of
the stock i,
Where
MAERit = Market adjusted excess return on
stock i at time t.
Now in a portfolio of n companies, the
average MAER will be calculated for
different months. The average will be taken
53
by assigning equal weightage to every
company. So, for a portfolio of n companies,
the average MAER at
And after this, 3-month, 6-month, 12-month,
24-month and 36-month averages of the
monthly average MAERs are calculated using
the above formula thereby giving both medium
term and long term performances.
Long term performance regression analysis
The factors considered for long term
performance are Listing day price, Age of the
firm before IPO, Number of times subscribed,
and Short MAER.
Listing day price
The listing price is basically the opening price
of the stock on the first trading session.
Hypothesis: There is no significant
relationship between long term MAER and
listing day price
Age of the firm before the IPO
Age of the firm before the IPO is related to the
market reputation and image of the firm before
it releases its initial public offer. It has been
seen that a firm having an age of less than nine
years generally underperforms in its IPO.
Hypothesis: There is no significant
relationship between long term MAER and age
of the firm before IPO
Times subscribed
Times subscribed can be explained as the ratio
of the number of shares demanded by the
public through IPO to the number of shares
offered by the company for the IPO.
Hypothesis: There is no significant
relationship between long term MAER and
times subscribed
Short MAER
The performance of an IPO in the short run, can
serve as an indicator of its performance in the
long run. All the factors stated above serve as
54
independent variables affecting the
performance of an IPO in either short or long
term. The performance of an IPO in this study is
being gauged by the market adjusted excess
returns which serve as our dependent variable.
The extent and nature of dependence will be
calculated by using SPSS, a statistical software
programme for computers. After the results,
this study will be able to identify the factors
which affect the performance of an IPO and the
extent including the nature of their effect on
different industrial sectors. Correlation
analysis between different industrial sectors
also carried out to observe how an activity in a
particular industry affects the activity in a
directly linked industry.
Hypothesis: There is no significant relationship
between long term MAER and short term
MAER of IPO
Long run performance of IP Os
The study considers the long term
performances of the IPOs in the same period
(2009-13). Generally, the investor envisages
what their return would be after one year or two
years or three years or in the subsequent years if
they invest their money today in a certain
investment avenue. IPOs are an interesting
investment opportunity which generally
ensures positive return in the short run. But is it
the same when it comes to the long run? Or do
the IPOs end up being unprofitable to the
Table 3: Descriptive Statistic of IPO – Entire Sample; Sample Size (N) = 117
Listing day
Long MAER
Price
Mean -47.47 213.21
Median -78.41 124.00
Grouped
-78.41 124.00
Median
Std. Error of
10.69 23.47
Mean
Minimum -156.07 9.00
ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017
investors? To answer these questions, an
analysis of the long run price performance of
the Indian IPOs for the period of three years
after their listing date was done.
For long term analysis, the descriptive statistics
and then correlation and regression analysis
were conducted to find relationship with long
MAER as a dependent factor. The research will
also look on the whole where the investors have
more chances of getting better returns in the
entirety as a whole sample of 117 IPOs, for the
secondary sector or tertiary sector. The
independent factors considered that are likely
to influence long term MAER, are listing day
price of stock, age of the firm before releasing
an IPO, times subscribed and short MAER
itself.
Descriptive statistics
In the descriptive statistics, the focus is on
performance of IPOs in the course of three
years of its release in the market and the various
parameters are on which the entire sample will
be evaluated. The comparison of means,
maximum/ minimum values, range, standard
deviation, variance, etc. which will show the
characteristics of that particular independent or
dependent factor in the long run performance of
IPOs. Emphasis will be laid on the similarities
and dissimilarities in the features of the given
samples to conclude about where the IPOs have
Age of the
Times
firm before Short MAER
Subscribed
IPO
18.75 10.90 7440.13
14.00 2.92 -2159.58
14.00 2.92 -2159.58
1.72 1.51 6593.33
2.00 .96 -172648.09
 55

Maxi mum 711.19 1500.00 114.00 93.60 267895.26

Sum -5554.24 24945.67 2194.00 1275.36 870496.21
Range 867.26 1491.00 112.00 92.64 440543.35
Std.
115.68 253.93 18.63 16.34 71317.80
Deviation
Kurtosis 23.24 10.76 10.27 6.15 3.09
Skewness 4.28 3.07 2.92 2.33 1.24
Variance 13382.59 64481.76 347.11 267.01 5086229368.52
Source: Calculated by authors
Table 4: Descriptive Statistic of IPO - Secondary Sector; Sample Size (N) = 57
Long MAER Listing day Age of the Times Short MAER
Price firm before IPO Subscribed
Mean -77.56 224.45 18.85 10.20 5089.40
Median -86.27 115. 00 14.00 2.95 -5616.56
Grouped Median -86.27 115.00 14.42 2.95 -5616.56
Sum -4421.38 12793.77 1075.00 581.65 290096.05
Minimum -156.07 27.10 2.00 .96 -120048.86
Maximum 69.07 1500.0 114.0 0 62.33 192490.44
Range 225.14 1472.9 112.0 0 61.37 312539.30
Std. Deviation 42.70 265.88 17.72 14.67 64950.14
Variance 1824.02 70694.95 314.12 215.48 4218521406.73
Kurtosis 2.19 10.28 14.11 3.81 1.48
Skewness 1.24 2.92 3.08 2.08 .87
Source: Calculated by authors
Table 5: Descriptive Statistic of IPO – Tertiary Sector; Sample Size (N) = 60
Long MAER Listing day Age of the firm Times Short MAER
Price before IPO Subscribed
Mean -18.20 202.53 18.65 11.56 9673.33
Median -49.83 128.00 13.50 2.70 1374.98
Grouped
-49.83 128.00 13.50 2.70 1374.98
Median
Sum -1092.54 12151.90 1119. 00 693.71 580400.13
Minimum -152.02 9.00 2.00 1.03 -172648.08
Maximum 711.19 1408.00 102.00 93.60 267895.26
Range 863.21 1399.00 100.00 92.57 440543.35
Std. Deviation 151.07 243.80 19.60 17.87 77366.74
Variance 22823.88 59439.35 384.29 319.54 5985613535.41
Kurtosis 12.55 12.44 8.47 6.95 3.75
Skewness 3.26 3.34 2.86 2.43 1.43
Source: Calculated by authors
56
Analysis of the descriptive statistics
(Long term)
The mean value of all the samples for long
MAER shows negative values, which means on
an average, the IPOs have yielded negative
returns in terms of market returns for the period
of three years. IPOs from the secondary sector
have encountered the most negative returns (-
77.56) compared to the entire sample mean (-
47.47) and the tertiary sector IPOs gave the
least negative returns (-18.20). Looking at the
maximum and minimum values of long
MAER, the minimum values of the secondary
and tertiary IPOs are rather same with values of
-156.07 and -152.02 but the tertiary sector IPOs
have a very high maximum value of 711.19
which is more than the secondary sector IPOs
with 69.06. Thus, the secondary sector has not
given high returns in the long run. The range,
standard deviation and variance of long MAER
in the tertiary sector IPOs is quite larger than
the IPOs belonging to the secondary sector and
can conclude the same as the lower values are
more or less same for both. However, it is the
maximum value of long MAER that is more
significant in the tertiary sector IPOs than in the
secondary sector IPOs. The listing day mean
price is the highest in the secondary sector IPOs
(Rs 224) as compared to the tertiary sector (Rs
202). The mean value of the entire sample is Rs
213, so it can be said that although the prices lie
close to each other, yet IPOs belonging to the
secondary sector on an average opened at
higher prices when they are listed in Nifty.
If we consider the kurtosis and skewness values
of long MAER, the kurtosis value is the highest
when considering the entire sample of IPOs
(23.24), more than that of tertiary (12.55) and
secondary (2.19). In terms of skewness, all the
values are positively skewed to the right with
the highest being of the entire sample (4.29).
The mean of the listing day price is the highest
for IPOs belonging to the secondary sector (Rs
224) and lowest in the tertiary sector (Rs 202)
ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017
i.e., it can be inferred that on the listing day, the
prices of the secondary sector IPOs opened at a
higher price than the average of Rs 213. On a
surprising note, the average age of a firm before
releasing an IPO is same for all the samples i.e.
18 years. Hence it is after around 18 years of
work in an industry, any company will feel
confident to release an IPO to raise equity
funding from the market. The minimum value
is two years and the maximum value lies
between 102-114 years. The standard deviation
and variance is more in the tertiary sector IPOs
than in the secondary sector. The mean value of
times subscribed is 11.56 times in tertiary IPOs
which are slightly more than secondary IPOs
(10.20). Although it is not much of a difference
but it does tell that IPOs belonging to the
tertiary sector have been a little more popular
and have been shown more interests by the
investors than the IPOs of the secondary sector.
The maximum value of times subscribed is
more in tertiary than in the secondary sector
IPOs, which means there was more
oversubscription for the tertiary sector IPOs.
For the lowest values, IPOs from the secondary
sector (0.6) have the lower value than other
IPOs but the difference in values is not much
(about 0.44). So the tertiary IPOs during this
period have not been undersubscribed. In terms
of the mean value of short term MAER, the
IPOs released in the tertiary sector have
exceedingly out-performed the secondary
sector IPOs. The average value of tertiary IPOs
is 9673.33 compared to 5089.41 of the
secondary sector which is almost double. The
entire sample average value stands close to
7440.13. Looking into the maximum and
minimum values of short MAER, the tertiary
sector outperformed the secondary sector by
having a higher maximum value of MAER but
the secondary sector IPOs have a better lower
value than tertiary, suffering less loss at an
instance. In terms of range, standard deviation
and variance of short MAER, tertiary IPOs
have a greater value than the secondary sector
 57

IPOs depicting a wider range and distributions
in its highest and lowest values which also
becomes the base for the entire sample.
Correlation and regression
The relationship between the dependent factor
and the independent factors is established to
measure the extent of correlation between
them. From the regression analysis, a study of
the impact of each independent factor on the
dependent factor was done to establish a
relationship in the form of regression equation.
Long term MAER is the dependent factor and
the independent factors include: listing day
price, age of firm before IPO, times subscribed
Correlation Analysis
Table 6: Correlation Analysis of IPO – Entire Sample: Sample size (N) = 117
& short term MAER. Multiple regression
analysis using OLS is used to test the influence
of the explanatory variables mentioned above.
To predict the correlation, Pearson two-tailed
test was used, assuming the hypothesis that
there is negative correlation between the
dependent and independents. From the
regression equation, the value of constant
(alpha) and beta can also be found out. The beta
values will give the magnitude of impact each
independent factor is giving. Both correlation
and regression were separately analyzed to
study the influence using two different
methods of analysis.

Long Listing Age of the Firm Times Short

MAER Day Price before IPO Subscribed MAER
Pearson
Long MAER 1 -.04 .00 .06 .03
Correlation
Sig. (2-tailed) .63 .97 .52 .69
Listing Day Pearson
-.04 1 .06 .47(**) .00
Price Correlation
Sig. (2-tailed) .63 .49 .00 .98
Age of the
Pearson
Firm before .003 .06 1 .25(**) -.05
Correlation
IPO
Sig. (2-tailed) .97 .49 .00 .55
Times Pearson
.06 .47(**) .25(**) 1 .00
Subscribed Correlation
Sig. (2-tailed) .52 .0 .00 .95
Pearson
Short MAER .03 .00 -.05 .00 1
Correlation
Sig. (2-tailed) .692 .987 .553 .955
Source: Calculated by authors
** Correlation is significant at 0.01 levels (2 tailed)
Table 7: Correlation Analysis of IPO – Secondary Sector: Sample size (N) = 57
Long Listing Age of the Times Short
MAER Day Price Firm before IPO Subscribed MAER
Long Pearson
1 .00 .32 (*) .04 -.22
MAER Correlation
Sig. (2 -tailed) .99 .01 .72 .09
58 ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017

Listing Day Pearson

.00 1 .19 .50 (**) .01
Price Correlation
Sig. (2 -tailed) .99 .15 .00 .89
Age of the Pearson
Firm before Correlation .32 (*) .19 1 .36 (**) -.02
IPO
Sig. (2 -tailed) .01 .15 .00 .87
Times Pearson
.04 .50 (**) .36 (**) 1 -.02
Subscribed Correlation
Sig. (2 -tailed) .72 .00 .00 .88
Short Pearson
-.22 .01 -.02 -.02 1
MAER Correlation
Sig. (2 -tailed) .09 .89 .87 .88
Source: Calculated by authors
* Correlation is significant at the 0.05 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).

TABLE 8: Correlation Analysis of IPO – Tertiary Sector: Sample size (N) = 60

Long Listing Age of the Firm Times Short
MAER Day Price before IPO Subscribed MAER
Pearson
Long MAER 1 -.05 -.05 .06 .08
Correlation
Sig. (2-tailed) .68 .68 .61 .51
Listing Day Pearson
-.05 1 -.05 .46(**) -.01
Price Correlation
Sig. (2 -tailed) .68 .67 .00 .94
Age of the
Pearson
Firm before -.05 -.05 1 .18 -.08
Correlation
IPO
Sig. (2-tailed) .68 .67 .15 .54
Times Pearson
.06 .46(**) .18 1 .02
Subscribed Correlation
Sig. (2-tailed) .61 .00 .15 .88
Pearson
Short MAER .08 -.01 -.08 .02 1
Correlation
Sig. (2-tailed) .51 94 .54 .88
Source: Calculated by authors
** Correlation is significant at the 0.01 level (2-tailed).
Observations from correlation analysis dependent and independent factors and among
From the above correlation data, interpretations the independent factors. A ** indicates a high
about the relationships can be made between the correlation among the factors for the two-tailed
 59

test (significant at 0.01 level). If we talk about
the dependent factor long MAER of the entire
sample, the listing day price has a small negative
correlation with it, but other factors like age of
firm, times subscribed and short term MAER
have a small positive correlation. However,
from the research perspective, no factor is
significantly affecting the dependent factor
either in a positive or negative way. The listing
day price has a very strong correlation with
times subscribed (0.47), and relatively weak
positive correlation with age of the firm before
IPO and subscription duration. Times
subscribed (0.25) have a strong relationship
with age of the firm and a negative relationship
with short MAER.
Considering the IPOs belonging to the
secondary sector, for the long MAER, the factor
which is highly positively correlated is age of
the firm before the launch of IPO (0.32). Short
MAER is negatively correlated with -0.22,
times subscribed (0.04) and listing day price
(0.001) show very weak correlation. Listing day
price has a strong relation with times subscribed
which is (0.50) and with age of the firm (0.19).
Also times subscribed have a strong correlation
with age of the firm (0.36) but it also highlights a
weak relation with short MAER (-0.02). Long
MAER in the tertiary sector IPOs has a negative
correlation with the listing day price (-0.05) and
age of the firm (-0.05) and positive with times
subscribed (0.06) and short MAER (0.08). The
listing day price shows a strong positive
correlation with times subscribed (0.46), a
negative relationship with age of the firm (-
0.05) and short MAER (-0.01). Age of the firm
has a positive correlation established with times
subscribed (0.18) and negative with short
MAER (-0.08).
To summarize correlation effects, if we see a
pattern and analyze, the findings reveal that
listing day price and times subscribed are
always positively correlated irrespective of the
IPOs released in any sector. For age of the firm
and times subscribed, they have shown positive
correlation in the entire sample and in the
secondary sector IPOs but not in the tertiary
sector IPOs. In only the secondary sector IPOs,
out of all the long term effects analysis, the
dependent long term MAER is positively
related to its independent factor, age of the firm.
Thus, age of a firm, in the secondary sector plays
a vital factor in determining the success of an
IPO release in the long run.

Regression analysis
Table 9: Regression Analysis of IPO - Entire Sample; Sample size (N) =117

Model Unstandar dized Standardized t Sig. 95% Confidence

Coefficients Coefficients Interval for B
B Std. Beta Lower Upper Zero- Partial
Error Bound Bound order
1 (Constant) -45.05 17.63 -2.55 .01 -79.99 -10.10
Listing day -.04 .04 -.09 .89
- .37 -.14 .05
Price
Age of Firm -.10 .60 -.01 -.17 .86 -1.30 1.09
Times .77 .78 .10 .98 .32 -.77 2.31
Subscribed
Short term 5.78 .00 .03 .37 .70 .00 .00
MAER
Source: Calculated by authors
60 ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017

Table 10: Regression Analysis of IPO – Secondary Sector; Sample size (N) =57
Model Unstandardized Standardized t Sig. 95% Confidence
Coefficients Coefficients Interval for B
B Std. Beta Lower Upper Zero- Partial
Error Bound Bound order
1 (Constant) -89.72 8.67 -10.34 .00 -107.13 -72.31
Listing day -.00 .02 -.02 -.17 .85 -.05 .04
Price
Age of Firm .84 .33 .35 2.56 .01 .18 1.50
Times -.21 .45 -.07 -.46 .64 -1.11 .69
Subscribed
Short term .00 .00 .21
- -1.68 .09 .00 .00
MAER
Source: Calculated by authors
Table 11: Regression Analysis of IPO – Tertiary Sector; Sample size (N) =60
Model Unstandardized Standardized t Sig. 95% Confidence
Coefficients Coefficients Interval for B
B Std. Beta Lower Upper Zero- Partial
Error Bound Bound order
1 (Constant) -6.45 33.15 -.19 .84 -72.88 59.98
Listing day -.07 .09 -.12 -.78 .43 -.26 .11
Price
Age of Firm -.60 1.06 -.07 -.57 .57 -2.73 1.52
Times 1.13 1.30 .13 .86 .38 -1.48 3.75
Subscribed
Short term .00 .00 .07 .57 .56 .00 .00
MAER
Source: Calculated by authors

Observation from regression analysis

Through the study of the dependent factor and
the independent factors used in regression, the
value of the constant- “alpha” and the “beta”
values of the independent factors are used to
establish their relationship with long term
MAER. The constant value for the entire
sample is negatively correlated (-45.05),
listing day price (-0.04) and age of the firm (-
0.10). Times subscribed and short MAER have
relatively positive values corresponding to
depending long MAER. The constant value for
the secondary sector IPOs has the highest
magnitude (-89.72), along with the listing day
price (-0.004) and times subscribed (-0.21) in
its negative relationship with long MAER. Age
of the firm (0.84) has the only positive beta
value. Short MAER gives a beta value of 0. The
unstandardized beta coefficients for the
tertiary sector show negative relationship of
constant (-6.45), age of the firm (-0.60) and
listing day price (-0.07). Times subscribed
show a positive value and short MAER
interestingly shows no coefficient value at all,
just like in the secondary IPO regression result.
 61

Fig. 4 Long-Term MAER Trend Analysis

150.00
102.01
LMAER 100.00

50.00
1.94
0.00 -25.10
-53.54
-50.00
-81.29

-100.00
Years
(2009) (2010) (2011) (2012) (2013)
Source: Calculated by authors
Figure 4 indicates that IPOs give in general The point to highlight here is that the sample
negative returns in the long term. The IPOs size of IPOs released in 2012 is 10 and for 2013
released in 2009, gave return of -25.10%, it is 3 only. Thus, no conclusions can be drawn
regarding the abnormal gains in this period. In
which plummeted to -53.54% and to the
any case, with the required adequate sample
maximum loss of -81.29%. The negative trend size in the first three years, i.e. 2009, 2010,
was halted for IPOs released in 2012, with a 2011, the IPOs gave negative returns with
positive return of 1.94% in 2015. It suggests respect to market returns. However, market
that during these 3-year period, the IPOs variations, investors sentiments, macro-
performed much better. economic conditions, regulations etc. also need
to be considered, which can be critical factors.
Fig. 5: Comparitive analysis of LMAER
0
-10 1 2 3 4 5 6
-20
-30 -18.65
-40
-50 -36.21
-60 -47.35
-70
-80
-90 -77.2 -77.57 -78.05

*Note: *LMAER stands for long term MAER calculated after 3 years of an IPO's listing date
1- Average LMAER for infrastructure (construction and energy industry) IPOs.
2- Average LMAER for entire secondary sector IPOs.
3- Average LMAER for secondary sector less infrastructure IPOs.
4- Average LMAER for tertiary sector IPOs.
5- Average LMAER for entire sample of IPOs.
6- Average LMAER for entire sample less infrastructure IPOs
62
The Figure 5 shows the average long term
returns of IPOs across various samples with
respect to infrastructure industry IPOs. There
are totally 32 IPOs listed in infrastructure, in
which 17 are from construction and real estate
while 15 are from power and energy industries.
The returns have been calculated after 3 years
from the listing day. From the graph, the
average long term MAER remains in the
negative region showing that the IPOs
underperformed after 3 years of listing date and
over the time they become overpriced.
Whether the IPO represents the companies in
infrastructure domain specifically or they are
collectively grouped in the secondary sector,
the returns are more or less same if we consider
the secondary sector only. The values are well
negative than the average LMAER of the entire
sample and also for the tertiary sector. The
IPOs belonging to the tertiary sector have
outperformed with minimum negative losses
and thus it is most beneficial to say the least that
for an investor's perspective, equity returns on
IPOs belonging to the tertiary sector will be
much more than IPOs belonging to the
secondary sector or even infrastructure
industry as such.
Conclusion
The present paper identifies the significant
independent factors that influenced the
performance of IPOs during the period of 2009-
13. The study also extended in the comparison
of the secondary and tertiary sector IPOs with
the analysis covering descriptive statistics,
correlation and regression models to study the
variable independent factors to dependent
factors. In the long term analysis where long-
term MAER was the dependent factor with
listing day price, age of the firm before IPO,
times subscribed and short MAER as
independent variables. Apart from descriptive
statistics what stood out in the correlation
analysis was listing day price and times
ASBM Jounal of Management, Vol. X, Issue II, July - December, 2017
subscribed are always positively correlated
irrespective of the IPOs released in any sector.
Similarly, age of the firm and times subscribed
have shown positive correlation in the entire
sample and in the secondary sector IPOs but
not in the tertiary sector IPOs. From this
correlation and regression analysis, for IPOs
belonging to the secondary sector, long MAER
has a significant relationship with age of the
firm before IPO, which means that this factor
has an established relationship in determining
long run returns of the IPO, which is only
characteristic factor that has emerged as a
significant factor.
In trend analysis, in the long run, the IPOs have
given negative yields to investors if three years
return criteria is considered. From year 2009-
11, the IPOs have given low returns to
investors, and the lowest has been for IPOs
launched in 2011. However, for IPOs launched
in 2012, the returns after three years i.e. 2015
have given positive returns too. Looking at the
average long MAER performances, the IPO
investors in the secondary sector incurred more
losses than the tertiary sector IPOs. There is no
difference as such between the performances of
infrastructure IPOs and other IPOs belonging
to the secondary sector.
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