WEALTH CREATION OR VALUE EROSION? A STUDY OF THE LONG-TERM PERFORMANCE OF INDIAN IPOS

Abstract

In the past 20 years, the primary capital market in India has grow substantially resulting in India becoming one of the largest IPO markets in the world and, therefore, the question of whether initial public offerings create long-term sustainability of wealth for investors or simply transfer wealth between investors is yet to be answered in India. This research provides an extensive empirical examination of the long-term performance, following the completion of the IPO, across an 2010 to 2023 time period and for 187 companies that listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). This research uses a multi-dimensional approach to analyze the performance of IPOs after their IPO through the use of three complimentary measures of performance; Buy-and-Hold Abnormal Returns (BHAR), Cumulative Abnormal Returns (CAR), and Wealth Relative (WR) at 1 year, 3 years, and 5 years after listing. Market-adjusted and risk-adjusted benchmarks have been employed to measure the magnitude of long-term underperformance/outperformance compared to the Nifty 50, BSE Sensex, and sectoral indices. The research also explores the cross-sectional drivers of the long-term IPO performance including: issue size, offer price, subscription rate, promoter holdings post-issue and underwriter reputation and industry classification, investor sentiment at listing, and macroeconomic conditions at the time of listing. Ultimately this research is for anyone who is confused whether chasing an IPO is worth it or not, as it offers evidence-based answers for all the investors and fund managers, bankers, and also regulators.