Underpricing, long-run performance and secondary-market liquidity: an empirical examination of Indian IPO market

In this paper, we study the underpricing, long-run performance of IPOs and the impact of underpricing on secondary market liquidity of IPOs which were issued in India during the period 2000–2008. The average underpricing for Indian IPOs is 37%. Uncertainty, information asymmetry and investor optimism are the factors which explain underpricing. The IPOs which take more time in getting listed on stock exchange after the close of the issue have higher underpricing. In the case of big IPOs, mature firms have less underpricing and the IPOs which have more lead managers have more underpricing. Calendar-time factor regression results show that IPOs underperform in the long-run. However, underperformance is more for big and more oversubscribed IPOs than that of small and less oversubscribed IPOs respectively. IPOs which are more underpriced in the primary market are more liquid in the secondary market and this relation holds for all the measures of liquidity used in the study.