Authors: Shailesh Rastogi
Addresses: Symbiosis Institute of Business Management Pune (Symbiosis International Deemed University), Lavale Campus, Pune, India
Abstract: Initial public offering (IPO) underpricing is a common practice all over the world. Several studies have attempted to identify the causes of or reasons behind underpricing and explain the phenomenon. The influence of the secondary market on underpricing in the primary market has been explained by Mauer and Senbet (1992). However, the explanation provided by Mauer and Senbet (1992) is not empirically supported by the findings of the present study which considers an Indian context for the period 1998-2012. The three-pronged theory of secondary market influence on primary market: 1) incomplete spanning; 2) incomplete access; 3) seasonality, is not supported in the Indian context. Moreover, findings of this paper have implications that go beyond the three-pronged theory to explain the influence of the secondary market on underpricing in the primary market. This paper recommends the use of behavioural finance to justify instances of underpricing in India.
Keywords: primary market; stock market; market efficiency; investors; underpricing.
International Journal of Accounting and Finance, 2019 Vol.9 No.2/3/4, pp.87 - 110
Accepted: 19 Apr 2019
Published online: 11 Apr 2020 *