Rationality behind Mispricing of IPOs in Indian Primary Market

Authors

  • Reshma Sinha Ray
  • Arup Kr. Chattopadhyay

DOI:

https://doi.org/10.33516/rb.v41i2.29-40p

Keywords:

Initial Public Offerings (IPOs), Underwriters, Money Left on the Table, Underpricing, Information Asymmetry.

Abstract

In this paper an attempt has been made to investigate different aspects of mispricing of IPOs in Indian primary market during the study period 2000-14. Firstly, the nature of pricing of IPOs is examined. It is seen that IPOs in India are, on an average, underpriced which is consistent with the observations of the earlier studies. The study also observes that the IPO issuing companies in India leave substantial amount ofmoney on the table.Next, we have examined the reasons for which promoters of the issuing companies do not get disappointed in spite of money being left on the table. Appling prospect theory explanation of Loughran and Ritter (2002) the study establishes that when offer price is revised in an upward direction expected wealth of the promoters' have increased. Underwriters take the benefit of the psychological state of promoters and set an offer price which may further rise in listingday.

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Published

2015-07-01

How to Cite

Ray, R. S., & Chattopadhyay, A. K. (2015). Rationality behind Mispricing of IPOs in Indian Primary Market. Research Bulletin, 41(2), 29–40. https://doi.org/10.33516/rb.v41i2.29-40p

Issue

Volume 41, Issue 2, July 2015

Section

Articles
Crossref
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Europe PMC

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