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Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled

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  • Amit Kumar Singh
  • Srishti Jain

Abstract

This article examines the performance of initial public offerings (IPOs) issued by the economic sectors in India. It analyses the level of underpricing measured by market adjusted initial return (MAIR), short-run performance measured by market-adjusted abnormal return (MAAR) and long-run performance measured by 3-year buy and hold abnormal return (BHAR) methodology relative to Sensex and Nifty for 40 IPOs approaching the capital market during the period 2006–2016. The selection of IPOs is based on the foreign direct investment (FDI) limit of USD 3,000 million in each economic sector, that is, primary sector, secondary sector and tertiary sector. The long-run analysis is done at the end of the first year, the second year and the third year. It is found using the ordinary least square (OLS) regression that variables like age of the issuing firm and volume traded on the first day of listing have a positive relation with initial returns, while offer size of the IPO has a negative relation with the initial return. Further, this study also finds out that the secondary sector performs poorly in the long run relative to the primary and tertiary sectors. This study can be of importance to investors for assessing different sectors before investing.

Suggested Citation

  • Amit Kumar Singh & Srishti Jain, 2020. "Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled," FIIB Business Review, , vol. 9(4), pages 309-318, December.
    • Handle: RePEc:sae:fbbsrw:v:9:y:2020:i:4:p:309-318
    DOI: 10.1177/2319714520973849
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    References listed on IDEAS

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