ABSTRACT
This research is the first to compare IPO fair pricing under reputed and non-reputed investment banks in India, a new context heretofore unmapped in the literature. Based on a sample of 20 IPOs, 10 sponsored by reputed banks and 10 sponsored by non-reputed banks, the paper tests underpricing, overpricing, and post-listing performance. The study finds that IPOs underwritten by reputable banks provided a mean cumulative return of 41.1% and those underwritten by non-reputed banks have a negative return of -6.6%. The difference is significant (t-stat = 2.0467, p < 0.05), which suggests that bank reputation determines the price efficiency of IPOs. Volatility analysis, although statistically insignificant (F = 0.6276), indicates greater speculative activity in non-reputed bank-sponsored IPOs. The finding is evidence of the certification hypothesis, as quality and lower information asymmetry are assured by reputable underwriters to investors. The research contributes to the field of IPO research by providing empirical evidence from the Indian market and emphasizing the significance of underwriter choice to issuers and investors. Implications also find their way to regulatory bodies like SEBI, which can take into account strengthening disclosure norms and reputation controls in IPO announcements. The paper concludes with presenting suggestions for future studies with macroeconomic variables and wider sectoral considerations.
