Journal of Advances in Management Research

The survival analysis of initial public offerings in India

Garima Baluja Balwinder Singh
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Garima Baluja Balwinder Singh , (2016),"The survival analysis of initial public offerings in India",
Journal of Advances in Management Research, Vol. 13 Iss 1 pp. 23 - 41
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The survival analysis of initial The survival

analysis
public offerings in India of IPOs
Garima Baluja
Department of Commerce and Business Management, 23
DAV University, Jalandhar, India, and
Balwinder Singh
Department of Commerce, Guru Nanak Dev University, Amritsar, India

Abstract
Purpose – Indian initial public offering (IPO) market has witnessed huge fluctuations in the post-
Securities Exchange Board of India era. Although several new issues have entered the market during
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this period, only a few of them have managed to survive well. A lot of researchers have examined the
aftermarket performance of such IPOs; however the phenomenon of IPO’s survival has remained a
neglected issue in India. Hence, the need arises to investigate the factors behind the success and failure
of new issues in the market. The purpose of this paper is to critically analyze the journey of IPOs in
terms of their survival in the aftermarket.
Design/methodology/approach – This study examines the survival profile of 3,374 IPOs in India
from 1992 to 2011 across the issue, market and company-specific variables using “Logistic Regression”
and “Survival Analysis” methodologies.
Findings – The study reveals that IPOs of older firms, backed by reputed lead managers and with
high demand are more likely to survive longer, whereas IPOs with high initial returns, higher risk and
more delay in listing are less likely to survive longer in the market. Further, it has been found that
increase in the size of IPOs accelerates their survival duration whereas high market level as well as
high IPO activity decelerates such duration on the exchange. The survival probability and the duration
of IPOs are negatively affected in case of agriculture, administration and support activities sectors,
whereas positively affected in case of mining, construction, wholesale and retail, accommodation,
information and communication, finance and insurance, and others sectors.
Practical implications – The findings of this study have fruitful implication for the issuers,
investors and the regulators as they can evaluate the future prospects of IPOs and can take the rational
decisions accordingly.
Originality/value – The study provides new evidences of the influence of certain factors on the
subsequent survival of newly listed issues which has not been extensively explored in India.
Keywords Initial public offerings (IPOs), Survival analysis, Logistic regression
Paper type Research paper

1. Introduction
An initial public offering (IPO) is a first-time sale of stock by a private company to the
public, after which it enters the market and becomes a public limited company. It is a
significant route of resource mobilization for a company and a vital investment
opportunity for investors from which they can generate superior returns. Despite their
perceived importance for businesses, owners and investors, IPOs have been found to
exhibit anomalous behavior. There persist three anomalies in the IPO market, namely,
short-run underpricing, long-run underperformance and the “hot issue phenomenon,”
which have been widely investigated by researchers across the globe (Allen and
Journal of Advances in
Faulhaber, 1989; Ritter, 1991b; Jain and Kini, 1999; Bhabra and Pettway, 2003; Kooli Management Research
and Suret, 2004; Miloud, 2009; Chi et al., 2010; Mayur and Mittal, 2011). However, there Vol. 13 No. 1, 2016
pp. 23-41
is one more phenomenon in the IPO market which is equally important, but has not © Emerald Group Publishing Limited
0972-7981
been extensively explored, i.e. the survival of IPOs in the aftermarket. Survival is, DOI 10.1108/JAMR-10-2014-0057
 JAMR in essence, the basic goal of an organization and an ultimate performance assessment
13,1 tool as it clearly indicates whether or not a firm has performed well enough to sustain
itself in its marketplace (Rath, 2008).
When a private firm becomes public, it has to go through a number of changes in
terms of its structure, strategy, processes, personnel, control and operating procedures,
which not only affect the performance of an IPO, but also influence its survival
24 prospects in the market after listing (Yang and Sheu, 2006). Hence, apart from just
evaluating the short-run and long-run performances of an IPO, it is imperative to
examine its potential for survival in the aftermarket. The sustainment of an IPO in the
marketplace is indispensable for a company to maximize its value, mobilize funds,
accelerate its public profile and boost its financial credibility. Similarly, investors can
build active trading strategies and enjoy superior returns as long as an IPO continues
to operate in the market following its share issue (Peristiani and Hong, 2004; Howton,
2006; Rath, 2008). Apart from the company and its investors, there are certain other
parties, such as executives, board members, auditors and underwriters, whose interests
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are linked with the likelihood of an IPO’s survival (Demers and Joos, 2007; Espenlaub
et al., 2012; Reutzel, 2012). Although the viability and endurance of an IPO holds
importance for each and every associated party, this has received less consideration in
India than elsewhere.
The Indian IPO market has witnessed significant changes in the era post the
establishment of the Securities Exchange Board of India (SEBI). The abolition of the role
of the Controller of Capital Issues, the establishment of SEBI and the introduction of a
free pricing mechanism has changed this whole facet of the market. All such reforms
have provided a lucrative launching point from which a large number of issuers have
entered the market via IPOs. From 1992 to 1996, they created a boom in the IPO market
(see Figure 1). However, at the same time, several poor-quality issuers who followed the
herd’s behavior availed themselves of this opportunity and devised their issues in order
to raise huge amounts of money from investors. Afterwards, however, such issuers
duped their shareholders and fled the market. The Ministry of Corporate Affairs
identified a large number of those fly-by-night operators that had disrupted the smooth
functioning of the market as a whole. This shattered the faith of investors, who started
losing interest in the market, which decelerated its growth significantly.

400,000 1,200
Size (millions) Number of IPOs
Resources Raised (Rs. Millions)

350,000
1,000
300,000
800
No. of Issues

250,000

200,000 600

150,000
400
100,000
200
50,000

0 0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Figure 1.
Trends in the Indian
Year
IPO market
Source: PRIME Database
 However, even against that background of distrust, a few issuers have continued to The survival
maintain their positions on the stock market. This signifies that surviving firms must analysis
have had some distinctive characteristics that supported their continued existence.
As pointed out by Boubakri et al. (2005), it is essential to determine whether the
of IPOs
survivors have a similar profile to those of non-survivors and whether, on the basis of
such firms’ characteristics, or other factors observable at the time of issue, the survival
of IPOs can be forecasted. Hence, the need has arisen to explore empirically the factors 25
that are crucial for the success or failure of IPOs in India. The present study is an
attempt to make such an exploration. The study aims to examine the survival profile
of IPOs for the period 1992-2011 across issue-, market- and company-specific
characteristics using logistic regression and survival analysis models.
This paper is organized into various sections. The conceptual framework is
discussed and hypotheses are framed in Section 2. The third section throws light on the
data and methodology used in the paper. The empirical results are presented in the
fourth section and a conclusion is provided for the final section of this paper.
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2. Conceptual framework and hypotheses development

The concept of the aftermarket survival of IPOs is relatively new and has not been
explored extensively by previous researchers. Only a few studies have tried to test this
phenomenon empirically across issue-, market- and company-specific factors. Mainly, such
kinds of analysis have been concentrated on developed economies such as those of the US,
the UK and Canada (Hensler et al., 1997; Jain and Kini, 1999; Demers and Joos, 2007; Kooli
and Meknassi, 2007; Chou et al., 2007; Rath, 2008), whereas, empirical analysis undertaken
in respect of developing economies, such as that in India, is quite scarce (Raju and
Prabhudesai, 2012). Hence, in the light of this research gap, the need has been felt to
investigate the survival profile of IPOs in India across the factors noted above. All these
factors have been categorized into issue-, market- and company-specific variables.

2.1 Issue-specific variables

Researchers have investigated the influence of several issue-specific variables on the
potential ability of IPOs to survive in the aftermarket. One of the most studied factors is
the issue size, which represents the accumulated resources in an issue. Scholars assert
that larger issues are better positioned in the market as they possess more resources to
face uncertain and tough situations (Hensler et al., 1997; Kooli and Meknassi, 2007;
Rath, 2008). The large resources raised from larger issues enhance the ability of firms to
recover from their own mistakes in their investment strategies, if they are compared to
the circumstances of smaller issues. Hence, companies that undertake such large issues
survive longer in the aftermarket (Schultz, 1993; Hensler et al., 1997; Kooli and
Meknassi, 2007). Based upon this discussion, the hypothetical relationship developed
for issue size and IPO survival is:
H1. Issues with larger offer sizes are less likely to be delisted and should survive
longer in the aftermarket.
Previous empirical evidence is suggestive of the positive role played by expert
intermediaries on the subsequent performance and survival of IPOs in the aftermarket
(Megginson and Weiss, 1991; Jain and Kini, 1999; Bhattacharya et al., 2011). Expert
intermediaries such as venture capitalists, underwriters and lead managers certify
the value of an IPO by reducing the information asymmetry in the issue and attract
large numbers of institutional investors toward the issue (Megginson and Weiss, 1991).
 JAMR In other words, reputed expert intermediaries act as a signaling factor for the issue
13,1 whose value-added services and wider network play a very significant role in
determining the success of an IPO in the aftermarket (Kooli and Meknassi, 2007;
Chancharat et al., 2008; Hamza and Kooli, 2010). Also, it is believed that since the
reputation of experts is highly dependent upon the success of the issues which they
handle, they will tend to select only good-quality issuers and support those IPOs which
26 possess higher survival prospects for the future (Howton, 2006). Thus, the combination
of a high-quality issue backed by reputed lead managers provides a competitive
advantage to an issue, and hence, those supported by expert intermediaries will tend
to survive longer in the market. Following the positive impact on the perception of an
IPO that expert intermediaries have in India, it is conjectured that:
H2. Issues backed by reputed lead managers are less likely to be delisted and thus
should survive longer in the aftermarket.
Initial returns, i.e. the returns on the first day of an issue, have also been significantly
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associated with IPO survival. However, explanations for the manner in which such
associations have a positive impact has not received any consensus. Several
researchers support a signaling hypothesis, which states that only good-quality firms
have the capacity to underprice their issues because they know that they would be able
to recover any costs in the aftermarket. By contrast, low-quality firms cannot afford to
forgo their funds knowing their probable subsequent valuation and likely market
performance (Hensler et al., 1997; Boubakri et al., 2005; Demers and Joos, 2007;
Chancharat et al., 2008). Hence, such good-quality issues with greater rates of
underpricing manage to maintain their identity and survive longer in the aftermarket.
Few researchers support Rock’s (1986) adverse selection theory which alleges that,
in order to attract uninformed investors toward the issue, poor-quality firms favor
underpricing. This is because such underpricing lead to unnecessary costs and burdens
on firms, which would enhance the chances of failure for their IPOs in the aftermarket
(Kooli and Meknassi, 2007; Hamza and Kooli, 2010; Raju and Prabhudesai, 2012). Hence,
in the light of such varied results, it is expected that:
H3. Initial returns have a significant influence on the survival of IPOs in the
aftermarket.
Researchers have adopted different proxies for measuring the demand for an IPO and
have examined their influence on the survival prospects of IPOs in the aftermarket
(Kooli and Meknassi, 2007; Hamza and Kooli, 2010). Subscription ratio, which
represents the number of times an issue is subscribed, has been a widely used measure
of investor demand. This ratio reflects the acceptability and credibility of an issue as
perceived by investors, which is turned into demand for that issue in the aftermarket
(Handa, 2014). A higher subscription ratio clearly signifies the readiness of investors to
put their funds into a firm’s offered security and to hold those funds there for a longer
duration, which may lead to the higher survival potential of such issues in the
aftermarket. Hence, it is expected that:
H4. Issues with higher demand are less likely to be delisted and therefore should
survive longer in the aftermarket.
Apart from these encouraging factors, there are certain variables, such as risk and list
delay, which not only diminish the probability of survival of IPOs, but also lower their
survival time in the aftermarket. Empirical evidence suggests that riskier IPOs are
 deeply underpriced and their operations exhibit a higher chance of incurring negative The survival
outcomes. These poor operational outcomes lead to an erosion of these firms asset analysis
bases, and the strength of a firm’s asset base is a major criterion upon which its right to
remain listed on the exchange is based (Hensler et al., 1997). Hence, when such a listing
of IPOs
requirement is not fulfilled, it would decelerate the probability of the survival of a firm’s
issue in the aftermarket. Expecting the similar influence of risk on the survival of IPOs
in India, it is hypothesized that: 27
H5. Issues with greater risk are more likely to be delisted and survive for a shorter
duration in the aftermarket.
The subsequent outcome for IPOs has been found to be influenced by delays in the
listing of issues (Shah, 1995; Sehgal and Singh, 2008). The Indian primary market has
faced a unique experience as, customarily, there has been a very long delay between
issue days and the first days of trading. Such delays are mainly due to time-consuming
administrative procedures and postponements of listings by the IPO issuing
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companies. Hence, the longer the lag between issue announcements and trading’s
commencement, the more sensitive information can be received by the market, which
can adversely impact underpriced stock and cause exaggerated volatility on the initial
listing day. Companies whose issues suffer such long delays may find it difficult to
sustain themselves longer in the market. Hence, it is expected that:
H6. Issues with more list delay are more likely to be delisted and survive for a
shorter duration in the aftermarket.
2.2 Market-specific variables
The anecdotal literature suggests that market timings are everything for an IPO.
A few studies have associated market-related factors to IPOs’ survival rates and have
observed that periods of high market levels attract large numbers of low-quality
firms to enter the market in order to take advantage of these windows of opportunity.
These circumstances create the “hot issue phenomenon” in markets when these
occur (Ritter, 1991a; Hensler et al., 1997; Yang and Sheu, 2006). In “hot issue” periods,
markets are more receptive to new equity issues, which creates so-called “herd
behavior” among issuers that can mainly be characterized as young and of poor
quality (Lehmann and Boschker, 2002; Zhao, 2005). In other words, equity issues tend
to cluster around market peaks (Loughran and Ritter, 1995). When the economic cycle
reverses and enters a downturn, such firms do not have the capacity to face tougher
market situations and hence their issues fail to survive in the aftermarket (Demers
and Joos, 2007; Kooli and Meknassi, 2007; Raju and Prabhudesai, 2012). It suggests
that due to over-optimism, such low-quality firms are overvalued, but such high
valuation does not last long. On the other hand, in cold periods, the stock market is
open only to the IPOs of high-quality companies, since weak firms find it difficult to
go public. Hence, high-quality firms survive longer in the aftermarket (Zhao, 2005;
Demers and Joos, 2007; Kooli and Meknassi, 2007; Chancharat et al., 2008; Hamza
and Kooli, 2010; Raju and Prabhudesai, 2012). Following these arguments, it is
hypothesized that:
H7. Issues undertaken during periods of high market levels are more likely to be
delisted and survive for shorter times in the aftermarket.
H8. Issues undertaken during periods of high IPO activity are more likely to be
delisted and survive for shorter times in the aftermarket.
 JAMR 2.3 Company-specific variables
13,1 The ages of firms at the times of issues has been investigated for a number of studies,
which uphold this factor as a crucial company-specific measure of survival (Hensler
et al., 1997; Fischer and Pollock, 2004; Peristiani and Hong, 2004; Demers and Joos, 2007;
Li et al., 2006; Adjei et al., 2008). It has been observed that longevity brings more
stability because the firms which have been in existence for a great number of years
28 provide historical data on their performance to investors before entering the market.
However, young firms lack seasoning and do not have extensive records of their past
performance, which makes investment in them more speculative and makes it more
difficult for them to survive long in the aftermarket (Demers and Joos, 2007). Hence, the
experience and the knowledge possessed by older firms enable their issues to survive
longer in the aftermarket (Ritter, 1991a; Schultz, 1993). Expecting the positive influence
of a company’s age on the survival of its IPO in India, it is conjectured that:
H9. Issues of older firms are less likely to be delisted and should survive longer in
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the aftermarket.
The importance for the survival of IPOs of having a presence in certain industrial
sectors has been emphasized by several researchers in the extant literature (Hensler
et al., 1997; Jain and Kini, 1999; Peristiani and Hong, 2004; Kooli and Meknassi, 2007).
It is alleged that since IPO firms are relatively smaller and less well established,
they are unlikely to survive the stiff competition presented by big industry players.
In high-growth and structurally attractive industries, it may be possible that IPO firms
identify the profitable niche opportunities that are not of interest to the main players in
their sectors, and thereby, are able to survive and grow. However, firms issuing IPOs in
mature industries may find achieving such growth a formidable challenge ( Jain and
Kini, 1999). Therefore, several factors specific to the industry in which a company
operates, such as growth rate, competition level, entry barriers, labor conditions,
technological developments, etc., play a crucial role in determining the success or
failure of IPOs in the aftermarket (Rath, 2008). Hence, it is expected that:
H10. There is a significant influence of industry on the survival of IPOs in the
aftermarket.

3. Database and methodology

3.1 Data and sample selection
The initial data consisted of 4,018 common stocks issued on the Bombay Stock
Exchange (BSE) from January 1992 to December 2010. Out of the total data, certain
corrections were made whereby companies that were merged or amalgamated and
companies with insufficient information were removed from the sample. It resulted in
3,607 IPOs issued on the BSE during the period of 19 years remaining for possible
study. In order to track each firm for five years, the sample has been restricted to those
observable up to 2006, so that finally, the study was undertaken for 3,374 IPOs that
were listed on the BSE from January 1992 to December 2006 and their performance was
analyzed till the end of 2011.

3.2 Sources for data collection

Data for the variables, such as issue size, issue price, times subscribed and IPO
activity, have been compiled from PRIME Database (a commercial agency for the
monitoring and compilation of information on all primary public issues in India)
 and from Capitaline Databases (provided by Capital Market Publishers India Ltd). The survival
The incorporation year of each IPO and their national industrial classification codes analysis
have been obtained from the Prowess database maintained by the Centre for
Monitoring Indian Economy Pvt. Ltd. On the basis of those codes, IPOs have been
of IPOs
classified into ten major industries. Furthermore, in order to compute the market
returns for underpricing and market level, Sensex values have been obtained from
the official website of the BSE. The data for post-listing IPO status, and the dates 29
and reasons for delisting have been taken from the official website of the BSE,
i.e. www.bseindia.com

3.3 Measurement of variables

Following Hensler et al. (1997), Rath (2008) and Bhattacharya et al. (2011), survivors are
defined as the issues that continue to list on the stock exchange, whereas non-survivors
are those which have been delisted from the exchange due to liquidation, permanent
suspension, compulsion by SEBI, or any other reason except due to their merger or
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movement to another stock exchange. The summary of issue-, market- and company-
specific variables used in the study has been presented in Table I.

3.4 Methodology
The empirical analysis has been undertaken using two distinct methodologies. First,
the determinants of IPO survival have been examined empirically using the logistic
regression model, whereas the survival times of IPOs have been tested using the
survival analysis model.
Logistic regression is a family of discrete choice models in which the dependent
variable is categorical and independent variables can be continuous as well as
categorical (Field, 2005, p. 218). The aim of this model is to assess how well the set of
independent variables predicts the occurrence of the categorical dependent variable.
The probability function in logistic regression can be written as follows:
 
Pi
Li ¼ ln
1P i
¼ b0 þ b1 X 1 þ b2 X 2 þ b3 X 3 þ    þ bn X n þ ei
where Li is the log of odds ratio; Pi the probability that Yi ¼ 1 (i.e. an IPO continues to
list on the exchange), and (1−Pi) ¼ probability that Yi ¼ 0 (i.e. an IPO delisted from the
exchange); β0 the constant; and β1, β2, β3, …, βn the coefficients to be estimated.
The efficiency of the logit model has been tested via a receiver operating
characteristic (ROC) curve. Though the logit model is capable of predicting whether the
event will occur or not, it does not give any idea about the timings of that event. In other
words, it makes no distinction between the firms failing within six months and the
firms failing after two years (Lowers et al., 1999; Kooli and Meknassi, 2007; Raju and
Prabhudesai, 2012). Hence, survival analysis methodology is best suited to overcome
this problem. The aim of survival analysis is not only to examine the occurrence of the
event, but also the timing of such an event (Mills, 2010). Further, this methodology is
capable of dealing with censored data as well as time series data. Since both these
features are present in the IPO market, this methodology is duly applicable (Hamza and
Kooli, 2010; Raju and Prabhudesai, 2012).
There are two main functions of survival analysis: survival function and hazard
function. The survival function refers to the probability that an individual will continue
 JAMR Expected
13,1 relationship
Variable Variable defined to survival

Issue-specific variables
Issue size The natural logarithm of the size of the offering listed in the +
prospectus, or the amount raised by the company in the issue
30 Lead manager’s Megginson and Weiss’s (1991) reputation measure, based upon +
reputation a number of issues and total size of issues managed
On the basis of the number of issues managed by lead
managers:
LM Reputation (n) ¼ Percentage of number of issues
managed by lead managers, i.e. total number of issues
managed by LM/Total number of issues in the sample
On the basis of the size of issues managed by lead
managers:
LM Reputation (size) ¼ Percentage of total issue size
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managed by lead managers, i.e. total issue size managed by

LM/Total issue size of all the issues in the sample
In case an issue has more than one lead manager, the average
of a lead manager’s share is used as a measure of quality
(Megginson and Weiss, 1991, p. 13)
Initial returns Raw returns ¼ (Closing price on the listing day−Offering +/−
(MAER) price)/(Offering price)
Market returns ¼ Closing value of Sensex on listing date
−Closing value of Sensex on issue date/Closing value of
Sensex on issue date
Market adjusted excess returns (MAER) ¼ Raw returns
−Market returns
IPO demand The natural logarithm of the number of times an issue has +
been subscribed
Risk Standard deviation of the first 30 trading days of aftermarket −
returns ( Jain and Kini, 1999)
List delay The natural logarithm of the difference between issue date −
and list date
Market-related variables
Market level Return on Sensex for the month of issue −
IPO activity The natural logarithm of the number of issues in the calendar −
quarter of the offering
Company-specific variables
Age of company The natural logarithm of the one plus the difference between +
Table I. incorporation year and the year of issue
Measurement Industry Binary industry dummies based upon NIC 2008 classifications +/−
of variables Source: Compiled from various studies

to survive till the end of the study period (Kleinbaum and Klein, 2005, p. 9):

S ðt Þ ¼ PrðT 4 t Þ ¼ 1F ðt Þ

here S(t) is the cumulative survival rate; T the time until the firm experiences the
event (trading months); t the study time period; and F(t) the cumulative density
function ¼ Pr(T ⩽ t).
 Whereas, the hazard function is the measure of conditional probability that the The survival
IPO is delisted instantaneously, given that it has survived up to time t. It is denoted as analysis
(Lee and Wang, 2003, p. 11):
of IPOs
Prðt p T o t þ DtjT X t Þ f ðt Þ f ðt Þ
hðt Þ ¼ lim ¼ ¼
Dt-0 Dt 1F ðt Þ S ðt Þ
here f(t) is the probability function which is the product of survival and the hazard 31
function:
f ðt Þ ¼ S ðt Þhðt Þ
There are several forms of survival analysis model such as the non-parametric, the
semi-parametric and the parametric. After evaluating the suitability of all such models,
the parametric survival analysis model, i.e. the accelerated failure time (AFT) model
has been employed. The model is written in log-linear as follows (Bradburn et al., 2003):
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LnðT Þ ¼ b0 þ b1 X 1 þ b2 X 2 þ b3 X 3 þ    þ bp X p þ e
Ln (T ) is the log of survival time which is the dependent variable; β0 the constant;
β1, β2, …, βp the coefficients to be estimated; X1, X2, X3, …, Xn the issue-, market- and
company-specific covariates and ε the residual term.

4. Empirical findings
4.1 Univariate analysis
In order to examine the difference between survivors and non-survivors across various
issue-, market- and company-specific variables, the comparison of IPOs has been done
using an independent samples t-test and a Mann-Whitney-Wilcoxon test and their
results are presented in Table II. The findings of these tests reveal that issue size, a lead
manager’s reputation and the IPO demand for survivors are significantly higher than
those for non-survivors, whereas the level of underpricing (market adjusted excess
return (MAER)), list delay, level of risk and IPO activity are significantly higher in non-
survivors as compared to survivors. However, no significant difference is found for
market level variables. The average age of survivors is found to be significantly higher
than non-survivors, a fact which supports the assertion that IPOs of older firms tend to
survive better in the aftermarket than IPOs of younger firms (Hensler et al., 1997;
Demers and Joos, 2007).

4.2 Multivariate analysis

Now, in the multivariate context, the survival profile of Indian IPOs has been examined
from 1992 to 2011 using the logistic regression and survival analysis models.
4.2.1 Logistic regression. The following logistic regression model has been
estimated and its results are presented hereafter in Table III:

Logitð pÞ ¼ a þ b1 Issue Size þ b2 LM ReputationðnÞ

þ b3 LM reputationðsizeÞþ b4 MAERþ b5 IPO Demand þ b6 Risk
þ b7 List Delay þ b8 Market Level þ b9 IPO Activity þ b10 Age
þ b11 Industry dummies
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32
13,1
JAMR

Table II.

non-survivors
survivors and
Comparison of
Survivor IPOs Non-survivor IPOs
Variables N Mean Median SD N Mean Median SD t-value Wilcoxon Z-value

Issue size (Crores) 2,501 23.35 3.25 170.38 873 4.38 3.16 6.75 5.55** −2.56**
Subscription (No. of times) 2,501 8.86 2.4 23.17 873 4.80 1.21 9.53 7.17*** −11.21***
MAER (Percentage) 2,501 41.31 18.18 133.30 873 46.47 19.84 110.91 −1.11 −2.53**
Lead manager rep. (n) (Percentage) 2,501 1.66 1.13 1.59 873 1.60 0.93 1.61 1.00 −1.79*
Lead manager rep. (size) (Percentage) 2,501 1.78 0.25 3.08 873 0.92 0.18 1.90 9.63*** −6.38***
Risk (Percentage) 2,501 0.12 0.08 0.41 873 0.134 0.10 0.129 −0.86 −9.10***
List delay (Days) 2,501 126.61 80 235.28 873 149.16 87 186.67 −2.56*** −8.46***
Market level (Percentage) 2,501 0.58 −0.92 8.70 873 0.891 −0.68 8.61 −0.90 −1.07
IPO activity (No. of issues) 2,501 216.15 230 122.48 873 228.51 230 96.80 −3.02*** −2.99***
Age (Years) 2,501 8.23 5 9.93 873 6.14 5 5.86 7.44*** −5.11***
Note: *,**,***Significant at 10, 5 and 1 percent levels, respectively
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Log-logistic regression-Accelerated
Logistic regression model failure time model
Independent variables β SE Wald Exp β β SE Wald Exp β

Issue-specific variables Issue size (Crore) 0.031 0.064 0.238 1.032 0.178 0.053 3.33*** 1.195
Lead manager’s reputation_size (Percentage) 0.111 0.027 17.229*** 1.117 0.092 0.019 4.68*** 1.096
Lead manager’s reputation_n (Percentage) −0.034 0.035 0.930 0.967 −0.007 0.028 −0.26 0.992
MAER (Percentage) −0.001 0.003 19.388*** 0.998 −0.002 0.0003 −5.33*** 0.998
IPO demand (No. of times) 0.371 0.042 76.568*** 1.449 0.509 0.036 14.12*** 1.664
Risk (Percentage) 0.108 0.148 0.532 1.114 −0.277 0.091 −3.02*** 0.757
List delay (No. of days) −0.366 0.074 24.378*** 0.694 −0.436 0.070 −6.18*** 0.646
Market-related variables Market level (Percentage) −0.007 0.005 1.894 0.993 −0.008 0.004 −1.91* 0.992
IPO activity (Number of issues) −0.264 0.076 12.108*** 0.768 −0.322 0.061 −5.22*** 0.724
Company-specific variables Age (Years) 0.200 0.057 12.058*** 1.221 0.152 0.050 3.02*** 1.165
Industry dummies
Agriculture −0.910 0.217 17.602*** 0.403 −1.058 0.192 −5.5*** 0.346
Mining 0.613 0.346 3.135* 1.845 0.103 0.277 0.37* 1.108
Construction 0.754 0.265 8.103*** 2.126 1.261 0.244 5.16*** 3.529
Wholesale and retail 0.818 0.212 14.915*** 2.266 0.370 0.1660 2.23** 1.448
Transport and storage 0.280 0.441 0.403 1.323 0.235 0.380 0.62 1.265
Accommodation 0.809 0.456 3.152* 2.245 1.009 0.386 2.61*** 2.745
Information and communication 2.324 0.347 44.936*** 10.213 1.839 0.192 9.54*** 6.29
Finance and insurance 0.340 0.125 7.410** 1.405 0.271 0.115 2.34** 1.312
Administration and support services −1.000 0.310 10.384*** 0.368 −0.758 0.284 −2.67*** 0.468
Others 1.110 0.336 10.906*** 3.036 1.253 0.286 4.37*** 3.502
Constant 3.195 0.642 24.781*** 24.405 6.793 0.565 12.02***
Omnibus tests of model coefficients ( χ2 ( p-value)) 404.109 (0.000) Log-likelihood 4,568.094
2
Nagelkerke R 0.166
2
Hosmer and Lemeshow ( χ ( p-value)) 11.047 (0.199) LR ( χ2 ( p-value)) 764.66 (0.000)
Overall classification percentage 74.5%
Notes: β, Beta; SE, Standard error. Exp β stands for “Exponential Beta.” *,**,***Significant at 10, 5 and 1 percent levels, respectively
analysis
The survival

survival analysis
regression model and
Table III.
Results of logistic
33
of IPOs
 JAMR The lead managers’ reputations, measured on the basis of the size of the issues
13,1 managed by them, reveal that the IPOs backed by reputed lead managers have had a
higher chance of survival in the aftermarket. This supports the assertion that experts
have a beneficial influence on the implementation of activities in IPO processes which,
in turn, improves the survival profile of issues on the exchange ( Jain and Kini, 1999;
Audretsch and Lehmann, 2005; Kooli and Meknassi, 2007). In other words, when issues
34 are backed by reputed lead managers, their expertise, effective monitoring and large
networks create better chances for the survival of such IPOs in the aftermarket.
On the other hand, returns on the first day, i.e. MAER, exhibit a negative influence on
the probability of survival for IPOs. It supports the proposition that an issue with
significant underpricing generates high indirect costs, fewer collected funds and more
financial difficulties for a firm. These factors, in turn, decrease the likelihood of the survival
of an IPO in the aftermarket (Kooli and Meknassi, 2007; Raju and Prabhudesai, 2012).
IPO demand, as measured by subscription ratio, has been found to be an encouraging
factor that enhances the likelihood of post-listing survival for IPOs in India. It suggests
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that the interest of investors toward an issue is significant in determining its survival in
the aftermarket (Kooli and Meknassi, 2007; Goot et al., 2011; Raju and Prabhudesai, 2012).
List delay, i.e. the difference between issuance and the list date, exhibits a negative
influence on the probability of the survival of IPOs. This finding supports the
proposition that issues with longer list delays have relatively less chance of survival in
the aftermarket. This means that when an issue takes more time in listing after
issuance, the level of uncertainty is enhanced and investors have more time to obtain
critical information about any such issues. Thus, it negatively affects the survival
probability of the issue on the exchange. However, no significant influence could be
obtained for risk and issue size on the likelihood of the survival of IPOs in India.
Of the market-related variables, IPO activity exhibits a negative influence on the
likelihood of survival of IPOs in the aftermarket. This corroborates the findings of Jain
and Kini (1999), Kooli and Meknassi (2007), Chi et al. (2010) and Raju and Prabhudesai
(2012) who have alleged that in “hot issue” periods, issuers indulge in herd behavior.
Thus, many poor-quality firms issue into the market, but due to fierce competition and
adverse market conditions, their low-quality issues fail to survive in the aftermarket.
However, no significant influence was observed for market level variables.
Of the company-specific variables discussed above, the ages of firms at the times of
their issues positively influenced the odds of their IPOs’ survival in the aftermarket.
Hence, the finding supports the expectation that older firms have advantages due to
their longer operational experience and demonstrate stronger fitness for their
environment, which enables their issues to survive more successfully than do those of
new firms (Hensler et al., 1997; Audretsch and Lehmann, 2005; Demers and Joos, 2007;
Chancharat et al., 2008; Carpentier and Suret, 2009).
Certain industry dummies also affect the probability of IPOs maintaining a positive
post-listing state. Taking the manufacturing sector as a base, it was observed that IPOs in
the agricultural and administration sectors had a higher chance of non-survival in the
aftermarket, whereas IPOs of mining, construction, wholesale and retail, accommodation,
information and communication, finance and insurance and other sectors exhibited more
likelihood of survival than manufacturing sector organizations. However, no significant
results were obtained for the transportation sector. This indicates that IPOs of industries
with high growth, low entry barriers and adequate levels of competition, perhaps have a
high potential for survival in the aftermarket.
 In order to test the goodness of fit of the logistic regression model employed by The survival
this study, an omnibus test of model coefficients has been used. The significant value analysis
of this test clearly indicates that the logistic model has a good fit. The value of the
Nagelkerke R2 was shown to be 16.5 percent, which is quite moderate. Furthermore,
of IPOs
the significant value of a Hosmer-Lemeshow statistics test supported the contention
that the model was worthwhile. The overall classification percentage of 74.5 percent
indicates that the model is quite good in predicting the correct category for survivors 35
and non-survivors.
The performance of the logistic regression model was tested via a ROC plot.
The area under the ROC curve is given by the statistic “c” that shows the association of
predicted probabilities with the observed responses table (Hosmer and Lemeshow,
2000). The large area under the ROC curve indicates the better predictive power of
the model. Figure 2 shows the area under the ROC curve to be 0.7143, which shows the
reasonableness of the model’s fit with the data, i.e. the model discriminates between the
survivors and the non-survivors well.
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4.2.2 Survival analysis. Once the influences of issue-, market- and company-specific
variables have been examined for the survival probability of IPOs, it is important to
know whether such variables have any influence on the survival duration of IPOs or
not. For this, the parametric survival analysis model, i.e. the AFT model has been
estimated. There are several functional forms of AFT model, such as the exponential,
gamma, Weibull, log-normal and log-logistic types, from which the best form has to be
selected. In order to assess the functional form, first the number of delisted and
suspended companies is plotted against time. Figure 3 exhibits that the peak of
delisting reached its maximum in the fifth and the sixth years and then it slowly
declined monotonically. This non-monotonic pattern in hazard suggests that the
log-normal or log-logistic functional forms of AFT model are appropriate. However,
although both are similar in shape, the log-logistic is preferable to the log-normal form
because it captures the censored data well and is not sensitive to smaller duration
(Hensler et al., 1997; Raju and Prabhudesai, 2012).
In order to assess the appropriateness of the log-logistic assumption, Kleinbaum
and Klein (2005) have advocated that the log-odds of survival should be a
linear function with a log of time with slope −ρ. Hence, in order to validate such a

1.00

0.75
Sensitivity

0.50

0.25

0.00
0.00 0.25 0.50 0.75 1.00
Figure 2.
Receiver operating
Area under ROC curve = 0.7143 1 – Specificity
characteristic curve
Source: Stata
 JAMR 250

No. of delisted and suspended IPO firms

13,1
200

150

36 100

50

0
Figure 3. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Delisting frequency Survival duration (in years)
distribution
Source: Author’s calculation
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log-logistic form, the log-odds ratio of survival has been plotted against the log
survival time and its output is given in Figure 4.
For the purposes of alternative assessment, the log-odds ratio of failure has been
plotted against the log survival time in Figure 5.
Since both the Figures 4 and 5 exhibit a straight line, the log-logistic form is best
fitted (Bradburn et al., 2003; Kleinbaum and Klein, 2005, p. 279).
In order to estimate the AFT model, all the IPOs (3,374 from 1992 till 2006) have been
tracked from the dates of their listing up to the dates of their delisting, or to the end of
2011, whichever is earlier. It has resulted in 1,683 survivors and 1,691 non-survivors.
The dependent variable for survival analysis is the number of trading months during
which an IPO survives, i.e. from the date of its listing till the date of its delisting, or to
the end of 2011. Since the time window is different for each issue, the probability of
survival or failure varies as per the length of the post-listing period (Raju and
Prabhudesai, 2012). Now, the model to be estimated is as follows, where the natural

4
logodds

–4 –2 0 2 4 6
Figure 4. log t
Survival plot
Source: Stata
 0 The survival
analysis
of IPOs
–2
logodds

37
–4

–6
–4 –2 0 2 4 6
log t Figure 5.
Failure plot
Source: Stata
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logarithm of survival time (Ln(Tj)) is presented in a linear function of the independent

variables:


Ln T j ¼ a þ b1 Issue Size þ b2 LM ReputationðnÞþ b3 LM reputationðsizeÞþ b4 MAER
þ b5 IPO Demand þ b6 Risk þ b7 List Delay þ b8 Market Level
þ b9 IPO Activity þ b10 Age þ b11 Industry dummies

The results of survival analysis are presented in Table III. In uniformity with the
hypothesis, it was found that the survival duration of IPOs significantly accelerated
with the increase in the size of IPOs, with higher subscription ratios and where lead
managers’ reputations were higher. However, it decelerated with high underpricing,
more risk, and longer delays between issuance and eventual listing. This confirms the
hypothesis that firms with larger issues are more established, less risky and possess
sufficient resources to face uncertain situations in the market, when compared to firms
with smaller issues. Consequently, such issues survive longer in the aftermarket
(Hensler et al., 1997; Kooli and Meknassi, 2007; Ahmad, 2012; Raju and Prabhudesai,
2012). Furthermore, market levels and IPO activity are found to have a negative
influence on the survival durations of IPOs. This finding corroborates several
researchers’ results (Demers and Joos, 2007; Kooli and Meknassi, 2007; Chi et al., 2010;
Raju and Prabhudesai, 2012), who have advocated the negative consequences of
“hot issue” periods on the post-listing duration of IPOs and have asserted that only
low-quality issuers enter the market during such periods in order to take advantage of
windows of opportunity. As a consequence, such issues survive for shorter periods in
the aftermarket.
Concerning company-specific variables, it was found that the survival durations
of IPOs accelerated significantly related to the age of the company and this confirms
that older firms are more experienced and more capable than newer firms.
Consequently, their issues exhibited a greater ability to survive longer in the
aftermarket (Hensler et al., 1997; Yang and Sheu, 2006). Certain industry
dummies have shown significant influence on the post-listing survival time of
 JAMR IPOs. The results exhibit higher rates of survival duration for those IPOs in the
13,1 mining, construction, wholesale and retail, transportation and storage,
accommodation, information and communication, finance and insurance and other
sectors, whereas IPOs in the agricultural, administrative and support service sectors
have much lower rates of duration.
In order to test the significance of the AFT model, the likelihood ratio test was applied.
38 It tests the null hypothesis that the model is insignificant. The value of the log-likelihood
statistic validated that the AFT model built for this study was significant.

5. Summary and conclusion

The aftermarket performance of IPOs has been widely investigated by researchers
from all over the world; however, empirical evidence concerning the survival profile of
IPOs in the aftermarket has not been given due consideration in India. This paper is an
attempt to fill the research gap by exploring the survival profile of Indian IPOs across
issue-, market- and company-specific variables from 1992 to 2011. The study provides
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empirical evidence to support the fact that issues which are larger in size, highly
demanded and backed by reputed lead managers, exhibit higher chances of survival as
well as longer survival durations in the aftermarket. By contrast, issues with high
levels of underpricing, more risk and more list delay survive for shorter durations in the
aftermarket. The findings for the survival profiles of IPOs across the market-related
variables reveal that issues during the high market level and “hot” periods are of low
quality and hence they sustain themselves in the exchange markets for less time. Also,
it was found that older firms have more potential to face uncertain market situations,
and hence, their issues survive for longer when compared to the issues of younger
firms. The survivability of IPOs was found to be highly dependent upon their growth
rate and the environments of their respective industry sectors. Perhaps, for this reason,
IPOs of agricultural and administration sector firms exhibit lower survival probability
as well as less durability, whereas IPOs of companies in growing sectors, such
as construction, wholesale and retail, mining, accommodation, information and
communication, finance and insurance and others exhibit a higher probability of
surviving longer in the aftermarket.
Overall, the findings of this study contribute to IPO literature in general and to
studies concerning their survival in particular. The results are very important for
issuers, investors, regulators and the entire capital market. With the help of such
survival analysis for IPOs, issuers can critically evaluate the factors that actually
influence the survival of their IPOs and can build such strategies for their issues that
would ensure their long-term endurance on the exchange. In other words, an
understanding of the relationships among the issue-, market- and company-specific
characteristics at the times of offerings and the prospects for the potential survivability
of an IPO in the aftermarket will allow issuing firms to make better decisions about
their IPOs and provide an initial estimate of the chances for a firm’s survival on the
trading exchange (Hensler et al., 1997). In the same manner, investors can evaluate the
issue-, market- and company-specific factors discussed in order to ensure that their
decisions to invest in any issue should turn out to be profitable in the aftermarket
( Jain and Kini, 1999; Howton, 2006; Yang and Sheu, 2006). Similarly, on the basis of the
survival analysis of IPOs, market regulators can ascertain the probable chances
for their long-term survival and can frame such laws as would ensure that only
good-quality issues enter the market at the appropriate time. Moreover, they can
identify fly-by-night operators and other fraudulent issuers that would otherwise
 disrupt the smooth functioning of the entire market. The present study provides a basis The survival
for regulators and policy makers to update their laws and formulate procedures that analysis
would not only create a lucrative and more sustained market, but would also protect
the interests of investors in the aftermarket (Raju and Prabhudesai, 2012). Hence, the
of IPOs
findings of this study are beneficial for all the parties associated with IPOs.
This study also lays the foundation for future research, as areas of this study
demand further exploration. Notably, several financial and corporate governance 39
variables have also been studied by other researchers; and they have also been found to
be significant in influencing the survival profile of IPOs. Hence, the impact of such
variables may also be examined to obtain more conclusive results about the
survivability of IPOs in the aftermarket.

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Carter, R. and Manaster, S. (1990), “Initial public offerings and underwriter reputation”, Journal of
Finance, Vol. 45 No. 4, pp. 1045-1067.
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About the authors

Dr Garima Baluja is Working as an Assistant Professor in the Department of Commerce and
Business Management at the DAV University, Jalandhar. Her research is focused in the area of
survival analysis, IPO market, stock market volatility, and financial inclusion. Garima Baluja is
the corresponding author and can be contacted at: garima.baluja@gmail.com
Dr Balwinder Singh is Serving as an Associate Professor in the Department of Commerce
at the Guru Nanak Dev University, Amritsar. He has research acumen for core financial issues
with special interests in the fields of banking and capital market.

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