Subscription levels

The results indicate that the sample IPOs were significantly underpriced on their respective listing days, as the average listing-day gain was 10.36% (t=2.587, p=0.014), and 65% of IPOs posted positive first-day returns. To measure long-term wealth creation over a period of one year, an average return of 60.69% was calculated (t=2.951, p=0.005), although a small number of extraordinary performers skews this large return; the median long-term return was 12.28% and 45% of the IPOs during this period had negative returns and destroyed wealth for investors. Importantly, this study demonstrates that the short-term and long-term performance of IPOs are independent statistically (r=0.025, p=0.876), which represents the most significant contribution of this study. Furthermore, using a paired sample t-test, the researchers confirm that there is a high level of significance regarding this independence (t=6.175, p<.001). The subscription level can be regarded as the major predictor of performance for initial day transactions (correlation coefficient of +0.719) (R² ≈ 50%), however, the profitability ratios (return on average assets (ROA), return on average equity (ROE) and earnings per share (EPS)) would not be a statistically significant predictor for the short-term return on investment as indicated by an ANOVA analysis (F = 0.595, p-value = 0.623 (R² = 4.72%)). The very strong negative relationship between the price-to-earnings (P/E) ratio on the date of listing and the amount gained on the first trading day (r = −0.648) provides corroboration for the overvaluation hypothesis. There is no statistically significant predictive power of the time in business on either time period. Furthermore, the results tend to suggest that Behavioural Finance Theory has much greater relevance than Fundamental Valuation Theory for the primary market; however, these results do indicate that long-term value is generated through fundamental underlying business performance. The implications of these findings are important for retail investors, issuers, merchant bankers and other regulatory bodies, particularly the Securities and Exchange Board of India (SEBI). ____________________________________________________________________________________________________________