Effects of IPO Offer Price Ranges on Initial Subscription, Initial Turnover and Ownership Structure—Evidence from Indian IPO Market

Harsimran Sandhu and Kousik Guhathakurta
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Harsimran Sandhu: Department of Finance & Accounting, Indian Institute of Management, Prabandh Shikhar, Rau-Pithampur Rd, Indore, Madhya Pradesh 453556, India
Kousik Guhathakurta: Department of Finance & Accounting, Indian Institute of Management, Prabandh Shikhar, Rau-Pithampur Rd, Indore, Madhya Pradesh 453556, India

JRFM, 2020, vol. 13, issue 11, 1-19

Abstract: In this paper, we establish the significance and effects of initial public offer (IPO) offer price ranges on subscription, initial trading, and post-IPO ownership structures. The primary market in India provides a unique setting for estimating the effect of various initial public offer (IPO) price ranges and IPO issue factors on the initial demand for an IPO among investors, measured by full IPO subscription/oversubscription, initial turnover (liquidity), and the post-IPO listing ownership structure among investors (ownership). For the IPO pre-listing stage, this study uses firth logistic regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the full subscription/oversubscription of an IPO in each investor category. For the post-IPO listing stage, the study uses OLS regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the initial trading ratio (IPO listing day trading) and the ownership percentage between institutional and individual investors. We find that all investor categories show a lesser likelihood for full subscription or oversubscription of an IPO issue at the lowest range of IPO offer prices. At the post-listing stage, the results indicate a diverse IPO offer price range in which individuals and institutions maximize their respective ownership holdings after the IPO listing. The results further show that lower promoter holdings diffuse higher ownership among individual shareholders by targeting lower IPO offer prices, thus increasing control.

Keywords: IPO offer price; initial public offerings; ownership structure; initial trading; investor behavior (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
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