ESSAYS ON INITIAL PUBLIC OFFERINGS IPOs

Abstract

The two essays in this thesis examine two natural experiments by the Securities Exchange Board newlineof India in the context of Initial Public Offerings (IPOs). In the first essay, we study the newlineconsequences of an exogenous regulation that allows IPO firms to enlist lead institutional investors newlinein India. We document a significant increase in IPO volume as a result of the regulation. Postregulation, anchor investor backed firms experience reduction in issue costs, an increase in capital newlineinvestments and a decrease in financial leverage. The effects on investments and leverage are newlinesignificant for high growth and financially constrained firms. Financially constrained firms backed newlineby anchor investors raise 26.4% more equity than unconstrained firms. Our findings provide newlineevidence that discretionary allocation of shares to institutional investors could reduce barriers to newlinesecurity issuance. newlineIn 2012 the Securities Exchange Board of India introduced a rule mandating a pre-opening trading newlinesession for IPOs on the listing day and price limits during the first ten days of trading. In the second newlineessay, we use this natural experiment to test whether the secondary market structure affects the newlinelevel and volatility of IPO initial returns. We document a significant reduction in volatility after newlinecontrolling for market-wide volatility. The reduction is also significant for younger firms and hardto-place offerings that face asymmetric information and valuation uncertainty. Our results suggest newlinethat regulatory price limits are useful in curbing the volatility in IPO initial returns.