Does syndicate structure create value for initial public offerings? An empirical investigation for the Indian market

Abstract

Purpose This paper aims to investigate the impact of the underwriters’ syndicate size (SS) and its structure on underpricing (UP), oversubscription rate, liquidity and volatility. The authors use a database of 185 initial public offers (IPOs) issued in India during the period 2012–2019. Design/methodology/approach The authors have used ordinary least squares regression and stepwise regression on cross-sectional data to construct the regression model for the dependent variables under consideration, namely, UP, subscription rate (SUB), listing day volatility and listing day liquidity. Findings The authors find that larger syndicates reduce UP. The authors also find strong evidence of a larger subscription rate for IPOs managed by larger syndicates, suggesting that larger syndicates generate more information in the market. Looking into the composition of investment banks in the syndicate, the authors find that syndicates comprising more lead managers and comanagers attract a higher subscription from potential investors. More book running lead managers and nonmanaging syndicate members help increase liquidity and reduce the volatility of IPO stocks on listing day. Additionally, the authors find that larger firms with reputed lead managers establish larger syndicates while venture-affiliated IPO firms prefer a smaller syndicate. Practical implications The findings would interest issuing firms, investors, intermediaries and policymakers engaged in formulating syndicates for better management of IPOs. Originality/value The study extends the present literature on IPO syndicates, particularly in the Indian context as an emerging economy. The study extended the present understanding of SS and composition, creating value for the issuers.