Do Prestigious Underwriters Shape the Performance of SME IPOs in India?

Abstract

The present article aims to examine the impact of underwriter reputation on underpricing and long-run returns of small- and medium-sized enterprise (SME) initial public offerings (IPOs) over a 12-month period in an emerging country like India on a sample of 403 IPOs issued from 2012 to 2018 and subsequently listed on Bombay Stock Exchange (BSE) small and medium enterprise (SME) platform and National Stock Exchange (NSE) EMERGE. However, the migration of 27 SME IPO companies to main platform has resulted in reduced sample size of 376 IPOs for measuring long-run performance. The current study has utilized ordinary least square regression technique to investigate the concerned relationship. The robustness of the findings has been further ensured by checking for endogeneity bias using two-stage least square regression (2SLS). The results unveil that while underwriter reputation positively influences underpricing of SME IPOs, it has no significant impact on their long-run performance. This analysis may provide some meaningful information for policymakers responsible for reforms of Indian equity market. For SME issuers, the findings may provide some insights on the importance of hiring reputed underwriters in IPO process. The results may further assist the investors in improving their equity valuation and taking informed investment decisions.