Relationship between Management Quality Certification and IPO Underpricing: Evidence from India

Abstract

The present study is an attempt to contribute to the extent literature on the Initial Public Offering (IPO) underpricing as it distinctively examines the relationship between the quality certifications used by issuers and the listing day returns of IPOs. The uniqueness of this study also lies in being one of the initial efforts to explore the quality certifications used by the issuers at the time of IPO in India. A sample period of 11 years, that is, 2004-2014, is examined. The average initial excess return (IPO underpricing) is observed at 21%. Taking a lead from the existing literature on IPO underpricing, various board-related, issue-related, and company-related variables were considered for an empirical analysis. It has been observed that the issue-related variables namely, issue size, listing delay, subscription ratio, and financial leverage, are significant. In addition, proxies used for management quality namely, professional associations of the board members, presence of female directors, and role duality, also significantly explain the IPO underpricing. These findings are consistent with Chemmanur and Paeglis (2005) and Reutzel and Belsito (2015).

Keywords: Management Quality, Initial Public Offering (IPO), Underpricing, India

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