IPO Underpricing and Long-Run Stock Performance in the Indian Capital Market: An Empirical Study of 115 Mainboard IPOs (2020–2023)

Abstract

This study examines initial IPO underpricing and subsequent long-run abnormal performance using a dataset of 115 Indian mainboard IPOs. The empirical framework focuses on market-entry underpricing and buy-and-hold abnormal returns (BHAR) over 12-, 24-, and 36-month horizons. The analysis combines descriptive statistics, one-sample t-tests, Wilcoxon signed-rank tests, and cross-sectional ordinary least squares (OLS) regressions estimated with HC3 heteroskedasticity-robust standard errors (MacKinnon & White, 1985). The results provide strong evidence of initial underpricing: the mean underpricing is 25.67%, with a one-sample t-statistic of 6.03 (p < 0.001) and a significant Wilcoxon test statistic (p < 0.001). The long-run results are more complex. The mean BHAR is positive at 13.81%, 23.10%, and 35.99% over 12, 24, and 36 months, respectively, and the corresponding t-tests are significant at the 5% level, respectively. However, the medians are negative at all three horizons, and the Wilcoxon tests are not significant. Therefore, the evidence indicates a strongly right-skewed long-run return distribution in which a relatively small group of extreme winners raises the arithmetic mean, while the median IPO remains negative. In HC3-robust regressions, initial underpricing is not significant for BHAR12 and is negative and only marginally significant for BHAR24 and BHAR36. The log issue size is negatively associated with BHAR12 and BHAR24, respectively. The subscription ratio, promoter shareholding, firm age, and included sector indicators are not statistically significant in the robust specifications. Therefore, this study rejects a simple narrative of universal long-run IPO underperformance or outperformance and highlights distributional asymmetry and issuer-size effects as central features of the sample.