The survival analysis of initial public offerings in India

Abstract

Purpose Indian IPO (Initial Public Offer) market has witnessed huge fluctuations in the post-SEBI (Securities Exchange Board of India) era. Although several new issues have entered the market during this period, yet only a few of them have managed to survive well. A lot of researchers have examined the aftermarket performance of such IPOs; however the phenomenon of IPO’s survival has remained a neglected issue in India. Hence, the need arises to investigate the factors behind the success and failure of new issues in the market. The present study attempts to critically analyze the journey of IPOs in terms of their survival in the aftermarket. Design/methodology/approach This study examines the survival profile of 3374 IPOs in India from 1992-2011 across the issue, market, and company specific variables using ‘Logistic Regression’ and ‘Survival Analysis’ methodologies. Findings The study reveals that IPOs of older firms, backed by reputed lead managers and with high demand are more likely to survive longer, whereas IPOs with high initial returns, higher risk and more delay in listing are less likely to survive longer in the market. Further, it has been found that increase in the size of IPOs accelerates their survival duration whereas high market level as well as high IPO activity decelerates such duration on the exchange. The survival probability and the duration of IPOs are negatively affected in case of agriculture, administration and support activities sectors, whereas positively affected in case of mining, construction, wholesale and retail, accommodation, information and communication, finance and insurance, and others sectors. Practical implications The findings of this study have fruitful implication for the issuers, investors, and the regulators as they can evaluate the future prospects of IPOs and can take the rational decisions accordingly. Originality/value The study provides new evidences of the influence of certain factors on the subsequent survival of newly listed issues which has not been extensively explored in India.