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Bradford University Dissertation Raise of Capital in International Financial Markets. An Empirical analysis on extent of Under-pricing of Indian IPOs in UK equity market (London Stock Exchange).
Venkata Kartheek Chowdari Bezawada
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Supervisor: - Dr. Gary Marsh 10024495 School of Management, Bradford University. August- 2011.

STATEMENT OF AUTHENTICITY
I have read the University Regulations relating to plagiarism and certify that, this dissertation is all my own work and does not contain any unacknowledged work from any other sources.

WORD COUNT: 20,504

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Raise of Capital in International Financial Markets. An Empirical analysis on extent of Under-pricing of Indian IPOs in UK (London Stock Exchange) equity market.
By,

Venkata Kartheek Chowdari Bezawada, 10024495, 2011.

Dissertation submitted to the Bradford University School of Management in partial fulfilment of the requirements for the degree of MSc in International Business and Management

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Dedicated To My Father

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Acknowledgement
I am thankful my supervisor, Dr. Gary Marsh, School of Management, Bradford University, who has played a significant role in advising me on the frame work of this dissertation by ironing out my queries. I am thankful to Dr. Gary Marsh to all my quires, and providing me detailed suggestions and comments on my research. It is very hard to think of my academic progress without the supervision he has given me during the dissertation period. Finally, I would like to thank my mother and uncle for their never ending support towards my education.

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Abstract 10024495
Raise of Capital in International Financial Markets. An Empirical analysis on extent of Under-pricing of Indian IPOs in UK equity market (London Stock Exchange). Key Words:Under-Pricing, Indian IPOs, UK Equity Market, London Stock Exchange, Initial returns, and Short run returns, Long run returns, investment bankers, under-writers. This dissertation empirically investigated the extent of Indian IPOs in UK equity market (London Stock Exchange). London Stock Exchange is the favourable place for Indian companies to raise capital in overseas capital markets. More than 43 Indian companies already listed in London Stock exchange for various reasons. Among them one of the reasons is to have better valuation than domestic capital markets. So, this dissertation empirically investigates the extent of pricing of Indian IPOs during the offering, with the help of various asymmetric information models proposed by various researchers. After, the economic liberalization in India, many companies tried to list in stock exchanges, while other raised capital in International capital markets. Among the International capital markets, London stands as preferable choices for Indian companies. As mentioned above, better valuation is the top priority for Indian companies. Does Indian companies are better valued by UK investors? To find answer to this question, this dissertation empirically investigates, initial, and short term and long term under-pricing with various information asymmetry models proposed by various researchers. Last but not least, this dissertation tires to find out various post offering
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firms characteristics that are responsible for Indian IPOs. This dissertation will be helpful to other Indian companies who are drawing road map to raise capital in London Stock Exchange and finally, to have better valuation than home country. Table of Contents:Chapter I:1.1. Introduction..12 1.2. Rationale of the Study..13 1.3. Importance of Studying Indian IPOs listed in London Stock Exchange13 1.4. Outline of the Research.15 1.5. Research Objective and Research Questions....16 1.5.1. Research Objective16 1.5.2.Research Question..16 1.6. Summary of the Chapters and Plan of the Study.16 1.6.1.Plan of the study16 1.6.2.Summary of the Chapters...17

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Chapter II:-An Analysis of Indian and UK equity markets. 2.1. Introduction..20 2.2 Importance of Stock Markets in India20 2.2.1. Problems in Indian Equity Markets......21 2.2.2. Under-pricing or Price Premium in Indian Equity markets..23 2.2.3. Existence of Grey Markets in Indian Equity Markets..25 2.3 Possible Motivations for Listing in Overseas Stock Exchanges27 2.3.1. An Overview of UK equity market28 2.3.2. London as financial capital of the world28 2.3.3. Equity market in London29 2.3.4. Cost of Capital Raising in London.30 2.3.5. Greater analyst coverage.31 2.3.6. Valuation Arbitrage31 2.3.7. Foreign capital for global expansion..32
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2.4. Conclusion32 Chapter III:- Literature Review
3. Introduction34 3.1. Literature review .35

3.1.1. Winners Curse Model..36 3.1.2. B-N Model- Principle Hypothesis43 3.1.2.1 Share allocation Strategies.44 3.1.2.2 Price Revision during Book Building Process...45 3.1.3 Principle Agent Model..48
3.2.

Conclusion

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Chapter IV:- Whether London is an good platform for Indian companys overseas

listing. An empirical analysis on under-pricing.

4.1 Data Collection..54 4.1.1 These data collection methods include prices of those companies, which satisfy the following criteria. 54 4.1.2. Research Hypothesis.....56 4.2. Methodology.57 4.2.1. Analysis of Indian IPOs under-pricing for initial day..57 4.2.2 Comparative analysis of Indian and Non-Indian IPOs..60 4.3. Short run Analysis .61 4.4. Long-Run Analysis64 4.5. Factors affecting IPO initial price performance.....70 4.5.1. Age of the company and Initial returns71 4.5.2. Offering Size or amounts of funds raised (SIZE) and under-pricing74 4.5.3. List Lead time and Initial price performance.....76

4.6. Conclusion....79 Chapter V:5.1.Summary and Conclusion

81 5.2Scope for further research.83 References..84

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Appendix91 Tables and Graphs:Tables:1. Indian Companies listed in London Stock Exchange.91 2. Elements in Cost for Listing and Raising Capital30 3. Annual listing fees comparison between LSE and NYSE..92 4. IPO listing fee comparison of LSE and NYSE.92 5. Under writer fees comparison between LSE and NYSE.93 6. Summary of Initial returns93 7. Descriptive statistics of Initial return year wise..94 8. Descriptive statistics of Market Adjusted Initial return year wise.95 9. Comparative analysis of Indian and Non-Indian IPOs.95 10.Comparing Initial return and Short Run analysis of returns..62 11.Comparing short run returns with Initial returns and Market Adjusted initial return96 12.Descriptive Statistics for Short run analysis over one week period.97 13.Descriptive Statistics for Short Run Analysis over one month period..98 14.Descriptive statistics for Short run Analysis over Six week period.99 15.Initial returns and market adjusted initial returns for long run analysis.100 16.Descriptive Statistics for Long run analysis over one year time period.101 17.Descriptive Statistics for Long Run Analysis over two years time period..102 18.Descriptive Statistics for Long Run Analysis over three years time period...103 19.International Evidence on factors for IPO under-pricing.70 20.Age of Companies listed in LSE72 21.Initial returns by Age...73 22.Initial returns by Issue Size75 23.Initial returns and Market Adjusted Returns by Offer size.76 24.Initial Returns and Market Adjusted Returns by List Lead time.77 25.Initial Returns and Market adjusted returns by Post Issue Promoter Holding78

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Graphs:1. Equity market capitalization of Indian Stock Exchanges..21 2. Short Run analysis of Indian IPOs63 3. Averages age of Indian Companies73

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Chapter I:-

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Chapter 1:1.1 Introduction:Each year many firms raise money through various capital raising methods such as issue of issue of equity (Stocks), debt (Corporate Bonds) and Bank based debt. Each year many companies in different countries try to raise capital through equity offering and going to public is one of the significant events in companys history. Firms primarily raise equity capital for corporate governance, capital restructuring, worthy investments and increasing their financial capabilities. And, this equity issuing generally termed as IPOs are associated with the several anomalies and the best anomalies is under-pricing. Under-pricing is costly process and by making the money to be left on the table, so it has attracted several researchers from finance, economics, and accounting and even from the law in analyzing the Initial Public Offerings initial, short run and long run under-pricing. The level of under-pricing differs from one market to another and one company to another and emerging capital markets are more under-priced than the industrialized nations. The effect of under-pricing on in equity markets are of greatest interests because these anomalies will have several implications on the IPO market. Under-pricing are generally considered as costly process in addition to direct cost of going public, companies considerably raise less capital than is guaranteed by their true assets and values. If new IPOs are consistently under-priced, investors who are not subscribed during the issuing process, seeks to diversify to other investments. This in ultimately will affect the IPO market and companies capital raising desires. The ability of the investor to earn huge profits from an IPO, raise questions as of information efficiency of the IPO market. With in economics, finance and accounting researchers proposed several theories to explain the under-pricing puzzle, but not theory has been alone so far for self sufficient to explain this anomaly. Most of the theories explain that IPO underpricing is due to many reasons such as, ex-ante uncertainty among investor groups Rock (1986), under-writers capabilities Baron (1982), Benveniste and Spindt (1989); another explanations is that issuing firms deliberately under-price new IPOs to attract investors Faulhaber (1989), Grinblatt and Hwang (1989) and Welch (1989).
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1.2 Rationale of the study or project. International Business has two parts: International trade and International Capital. International capital (or international finance) studies the flow of capital across international financial markets; International capital plays a crucial role in an open economy. In this era of liberalisation and globalisation, the flows of international capital (including intellectual capital) are enormous and diverse across countries. Finance gained more mobility as factors of production especially through the multinational corporations (MNCs).Foreign investments are increasingly significant even for the emerging economies like India. This is in-keeping with the trend of international economic integration Hering (1994). A Peter Drucker rightly says, "Increasingly world investment rather than world trade will be driving the international economy". Therefore, a study of international capital movements is much rewarding both theoretically and practically. Firms primarily rise their money, by corporate bonds, bank based debts and in equity markets. My research will primarily focus on the equity capital raising anomalies (Under-pricing) of Indian IPOs in LONDON equity market. 1.3. Importance of studying Indian IPOs listed in London equity market ( London Stock Exchange):It is very important to study Indian companies IPOs listed in London Equity market. These overseas listed companies are not only supports empirical evidence of benefits in overseas capital raising but also a testing base for cross border listing, international approaches for privatizations and finally emerging markets financial reforms. India is one of the fastest growing economies in the world after China, and Indias development is catching the world eye.

To support the economy and to compete in the domestic and global market, Indian companies need substantial capital for their operations and investments. Although Indian equity markets are very well developed, market is too crowded with the capital raisers and noisy retail investors. The lack of strong institutional supporters to provide sufficient liquidity to the companies is one of the drawbacks in the Indian equity
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market. Moreover, in the year 2004 Indian government announced new 75% plan which makes every listed company to issue minimum of 25% equity in the market. Moving from centrally planned economy to free economy Indian government enterprises (PSUs) are flooding the market with jumbo IPOs, which are more than two billion dollars each. And, these highly profitable PSUs are attracting every investor base from all the country and FIIs too. To overcome this particular scenario and other problems Indian companies are motivated to list in overseas equity markets. When considering an overseas listing, Indian companies first considered choice is London. Last but not least, London has strategic importance in world markets place and is naturally selected for Indian companies overseas IPOs. At the current state London remains most optimistic target for the Indian companies to raise capital. London captures the majority percentage of Indian companies overseas IPOs. Out of 64 overseas listed Indian companies 43 are listed in London stock exchange. Between 1999 and 2011 excluding 2003 and 2011 there are 43 Indian companies listed in London Stock exchange and another 23 companies are expressed their intentions and preparing marketing road shows to list their stocks. And, Indian government supports companies to list in London by adopting International Accounting standards (UK GAAP) from Indian accounting Standards. So studying the Indian companies listed in London equity market is intellectually demanding. This is the main motive effectively behind this dissertation.

This dissertation, therefore, empirically investigates issues relating to under-pricing of Indian IPOs at London equity market. Based on the asymmetric information theories and extant literature in IPOs and overseas listing literature, the proposed dissertation includes initial under-pricing with both short and long run methods. Earlier studies include and based on the experience of Initial Public Offerings around the world, offer many interesting with wise explanations to the huge amount of money left on the table.
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The theories include the winnerscurse (Rock, 1986; Ritter, 1984), lawsuit avoidance (Tinic, 1988), signalling (Welch, 1989), discriminate allocation (Aggarwal, Nagpurnanand and Manju, 2002), self-interest investment bankers (Baron, 1982; Carter and Manaster, (1990) book building (Benveniste and Spindt, 1989), as well as information cascade (Welch, 1992). Apart from existing asymmetric information theories, empirical evidence also suggests that the level of under pricing is different from one period to another (Loughran, and Ritter, 2004) and differ from one country to another (Loughran, Ritter, and Rydqvist, 1994). The dissertation is constructed upon existing literature, but steps further by jointly testing the extent of under-pricing of Indian IPOs in London equity market. 1.4. Outline of the Research:Empirical investigation begins with investigating of under-pricing of Indian IPOs in the London and with a comparative analysis of Indian IPOs with other International IPOs for the period 1999-2011. The years 2003 and 2011 are excluded from the study as because lack of Indian IPOs during that particular period. The phenomenon of initial returns exists in overseas listing provide the evidence that overseas listing is generally associated with information asymmetry. This is the premises of this dissertation and once this information barrier is crossed over, both issuers and underwriters can act in a way to reduce the under-pricing. So, knowing the extent of under-pricing of Indian IPOs and comparing with international counterparts are the objective of this study.

1.5. Research Objective and Research Question:1.5.1. Research Objective:1. To explore the level of Under-pricing and Indian IPOs in the UK equity market (London Stock Exchange). 1.5.2. Research Questions:10024495 Page 15

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1. An overseas listed companies tend have more under-pricing due to uncertainty and higher information asymmetry. If so, does the Indian IPOs are under-priced more than others in UK equity market.. 2. To study the extent of under-pricing in Short run and Long run of Indian IPOs in UK. 3. What are the factors affecting the Indian IPO price performance.

1.6. Summary of the Chapters and Plan of the study:1.6.1. Plan of the Study:The rest of the dissertations are organized as follows, Chapter 2 briefly discusses about the equity market in India, its developments and problems and its link to equity capital raisers and finally ends with explanations about the reasons why UK is preferred by Indian IPOs International destination. Chapter 3 begins with literature review with brief discussion on capital raising and review of various theories proposed by the authors on IPO anomaly such as under-pricing and ends with an conclusion. Chapter 4 turns on focusing on data collections and methodology of the dissertation. And finally this dissertation ends with the Chapter 5 with summary of the dissertation, conclusion, draw backs and scope for the further research.

1.6.2. Summary of the Chapters:Before jumping into the literature review and empirical investigation, Chapter 2 provides an overview of Indian equity market and problems associated with in the Indian equity market. This chapter provides a brief explanation about the development of Indian equity market, its achievements over the period of time and finally problems such as grey markets and huge under-pricing that makes companies to leave money on the table. This section of the chapter summarizes how the existing of grey markets in many Indian cites are effecting the Indian IPO price performance and resulting in large
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under-pricing of shares, and finally effecting the Indian capital raisers desires to raise substantial capital. After careful explanations are finished on Indian equity market, this chapter tries to summarize the reasons why UK is considered as preferable choice for Indian companies for overseas listing. This section of the chapter introduces UK as preferable and mature market and appropriate trading platform for Indian companies to seek primary overseas listing. The reasons that support UK as preferable choice include mature UK market, cost of capital raising in comparison with USA, analyst coverage, valuation arbitrage and foreign capital for global expansion. Chapter 3 deals with literature review for the entire dissertation and summarize various theories and hypothesis developed by various researchers around the world in supporting the under-pricing. In order to discover the influence of asymmetric information on overseas listing, the literature review uses Winners Curse Model Rock (1986), B-S Model (1989) and finally principle agent models researched by the various authors such as Beatty and Ritter (1989) and Carter and Dark (1990). In supporting the Winners Curse Models various other explanations on short term and long terms underpricing has been studied. After summarizing the various theories proposed by the researchers, this chapter ends with research objective, question and research hypothesis. The research objective is to find whether is suitable platform for Indian IPOs an empirical analysis under-pricing. To support the objective research question is organized as to find the extent of under-pricing in first day of trading day, short run analysis and long run analysis. Chapter 4 deals with data collection procedures and methodology of the dissertation. This chapter explains how the data is identified and collected and scrutinized for the research. Although primary data collection such interviews are most often used in successful research, this chapter uses secondary data collection methods or desk collection methods are used for the data. The primary reason for the opting for the secondary data collection methods due to huge amount numerical data is needed for the descriptive statistics which is finally supports the objective. When coming to the methodology part, this chapter first finds the extent of under-pricing in initial day returns of Indian IPOs and compares with the other international companies. To know
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the exact amount of under-pricing market adjusted returns are also calculated and compared with the initial returns. After initial returns are calculated these returns are compared with the other international IPO during the sample period. There is mean initial return of 11.04% and markets adjusted mean returns of 10.79%. These descriptive statistics are consistent and exists a mean positive relationship between ex-ante uncertainty and Initial Public Offering under performance or under-pricing. And the Indian IPO returns are comparatively low with other International Offerings. After finishing with the initial day returns short run analysis and long run analysis were calculated and explained. In short run analysis, there exists a greater degree of under-pricing when compared to the initial day returns. In long run analysis the IPO shows negative returns, these scenarios are explained with the help of existing literature. Finally this chapter explains the factors that are responsible for the under-pricing which are included but now limited to age (AGE) of the company, Size (SIZE) of the offering and finally IPO listing lead time. Chapter 5 included summaries of the dissertation, conclusion, and draw backs for the chapter and finally ends with scope for the further research.

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Chapter II
A Brief Overview of Indian and UK Equity markets.

Chapter II:2.1 Introduction: Indian stock market (BSE) was launched at the beginning of 1830, during the British Government rule in India. Bombay stock exchange is the oldest and fourth largest stock exchange in Asia with an equity market capitalization of the companies listed on the BSE (Bombay Stock Exchange) was US$1.63 trillion. When the first Indian enterprise started listing in 1992, journey towards overseas capital rising started. By the end of year 2010 more than GBP 19 billion was raised by Indian firms mainly from London, New York stock and Luxemburg stock exchanges. . In contrast there should be some reasons, why Indian firms are focusing on raising capital in international financial markets by listing their stocks or by issuing debts
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bonds, for the past twenty years. Thus this chapter also aims to emphasizes on endogenous problems of Indian stock market for capital raising and try to summarize number of possible explanations, why Indian companies are aiming for the listing their stocks in UK equity market. Finally this chapter concluded, what are the benefits that mature equity market such as London can offer for Indian companies. 2.2. Importance of stock exchanges in India:The following graph provides clear picture of the enormous growth of Indian securities market. Since 1990 abolition of Licence Raj and encouraging economic reforms, it has been through skyrocketing, especially after each stage of economic reform. In India, economic reform are considered in three stages, at first stage government opened windows to economic reforms during the tenure of Prime Minister Mr P.V. Narashima Rao and in the second stage early 21st century during the NDA government under Mr. Atlal Bihari Vajpayee and in the final stage under the rule Mr. Manmohan Sing. During all this period Indian stock markets has attracted huge amount capital flows.

Graph 1:- Equity market Capitalization of Indian Stock Markets

Source: - Bombay Stock Exchange. The pillars of strong capital markets ease the process of economic development in a broader context. The presences of efficient financial sector in any economy play a crucial role in helping the allocation of scare resources to the most productive use and generate multi fold effect on economic growth. India needs very healthy and well developed financial markets, for development as well as to move to a state of balanced, harmonious and innovation based sustainable growth. As well developed financial sector provides diverse array of financing channels at lower cost. As healthy financial market is more likely to increase national wide stability and reduce volatility.
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2.2.1. Problems in Indian Equity Market: Although Indian equity markets are well developed sufficient liquidity for small IPOs to multibillion dollar IPOs, there are still some problems exists within the market. Price premium and existence of the grey markets are the main problems in the equity markets, which makes the issuers to think twice and make sound decisions about an offering. Because presence of other investment alternatives, the Indian equity market is pending for diversity.

Without domestic institutional investors the market is crowded with FIIs (Foreign Institutional Investors) and noisy retail investors. More over Indian banking system is more dominated by the government banks, which is still transforming into a sophisticated, efficient, market-driven system with proper risk controlling measures. There are some high level government officers, who still think to lend for the government enterprise as they have counter guarantee from the central planning committee. Moreover, as bank interest rates are sky rocketing to nearly 8-12%, investors mainly invest in these riskless investments. As, with high interest rates offered by the banks, investors are expecting high ROEs which takes the companies cost of equity to further step. Although Government allows the FIIs to meet the demand of capital hungry Indian companies but still places a cap on their investment to certain point. Thus, with lack of high quality domestic institutional investors and a cap on FIIs makes the equity markets as market with enormous capitalization, but less-developed domestic market remains incomparable to worlds leading capital markets. These general reasons that portrays, the scenario in the Indian capital markets, but Indian companies are facing more industry oriented problems which affect their capital raising strategies. Precisely speaking, these problems are under-pricing and existence of grey markets in many Indian cities. Thus the following part of this chapter is designed as follows; firstly this chapter will briefly discuss the under-pricing and existence of grey markets by various authors and
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researchers on Indian equity market. This is followed by motivations to list in overseas equity markets such as UK. This chapter finally try to summarize possible explanations on Why UK an optimal choice for overseas listing.

2.2.2 Price Premium (Under-pricing): This part of the chapter investigates, does under pricing in public offering is a possible reasons for Indian firms to list in overseas equity markets. This part of the chapter pay close attention to the developments in Indian stock markets in terms of offering mechanisms (book building and fixed price offers) in security market and investigate the possible motivation for the overseas listing. At the end of this section, it clearly defines, whether Indian firms domestic IPOs are underpriced or not? Under pricing of any IPO generally defined as Price difference between offer price and first day closing price of that particular stock in any situation. Extant literature in the field of finance argued that, IPOs are underpriced. The degree of under pricing varies from one country to another and one sector to another over a period of time. This under priced IPOs leaves money on the table to the firms and money in the pockets to the investors. So, under pricing is a cost for the issuing firm and there are many theoretical explanations about the IPOs under pricing. Gosh (2002) with empirical evidence identified in Indian equity market there exists a positive relationship between the ex-ante uncertainty measures and IPO under-pricing. The research also concludes that number of companies decision on going to public depended on the initial returns and/or on the aftermarket returns. Although, free flow of information exists between the investor groups, ex-ante uncertainty exists within the Indian market. He also concluded that time gap between offer dates and trading date which is a consequence of information dissemination played a vital role in the under-pricing.
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Jain (2009) concluded that, there exists an average of 28% underpricing to a maximum of 248% under-pricing in Indian IPO hot market period during 2004-09. The sample holds 242 Indian firms ranging from all sectors of the business. The offer mechanism is open book building process, which is the measure taken by the Indian government to reduce the ex-ante uncertainty between the investor groups. But, still a great degree of under-pricing exists in the Indian equity markets. Sing and Kumar (2008) investigated short run and long run analysis on Indian IPO for a period of three years between 2006-2009 and found that there exists an 18% under-pricing for short run and 15% for long run analysis. They found that over subscription variable such as institutional investors and individual investors are the main determinants of the under-pricing. The higher the subscription for an IPO the more money left on the table, which makes the firms to think twice for a secondary issue. Kushred et al (2009) analysed certain characteristics of Indian book building process. They argued as the book building process is open mechanism, information asymmetry has no relation with underpricing. These researchers studied, un-met demand from the noninstitutional investors, is the main reason for under-pricing of IPOs in India. Although the book building process is an open mechanism, the disbelief towards the capital markets by the retail and noninstitutional investors causes a scenario where certain group of investors are moving on the safer side, by not participating in the IPO process. This type of scenario mainly seen, during IPO withdrawals and poor performance of the market. Bubhna and Prabhala (2008) examined the impact of removal of discretionary powers to investment bankers, to allocate the shares
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between different groups of investors. The impact of removal of underwriter discretion to allocate shares between investor groups actually increased the under-pricing. Thus issuing firms borne the problems as a result of benefits made for reducing ex-ante uncertainty. But this research contradicts the Benveniste and Wilhelm (1990) model, which states that discretion powers in underwriter, made them to allocate shares to their favourite clients.

2.2.3. Existence of Grey markets:Grey market is a place where short selling of securities for profit, even before as securities made public. Grey Market which is also cited as parallel market has number of distribution channels which, while legal, unauthorized and unofficial. Most Indian cities are the active centres for grey market in India, in which business is done and settled in the first day of the trading day. At stipulated prices, the seller must deliver the exact amount of shares he has committed and if the seller lacks the committed shares he has to buy from the stock market. IPOs are quoting at significant prices at grey market than the offer price; this mean that issues are under-priced. This scenario resulted in many individual investors selling their application with secured interest to the grey market players. And finally this result in under-pricing of IPOs, in which money is left on the table. This grey market is considered as THORN in side of companies and affecting their capital raising desires. Cornelli et al (2003) developed a model to identify the effect of grey market on IPOs during the book building process. The book building process extracts the information based on the fundamentals of the company. On the other hand grey market, reflect the
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information about the retail and individual investors and is publicly observed. These researchers showed that, when grey market price is relatively equal to the offer price, he will set the price based on fundamentals. But when the offer price is relatively lower to the offer price under-writer change the offer price to the grey market premium. This results in creation of asymmetry and affects the aftermarket performance, which creates an under-pricing IPO market. Dorn (2002) looks at the behaviour of retail investors in the German grey market and nds that they appear willing to overpay, and thus views these investors as sentiment investors. Moreover, researcher concluded that retail sentiment helps push aftermarket prices performance temporarily above their basic fundamental levels, since his results showed that the rst-day trading return is positively related with retail buying pressure. One particular aspect that differentiated IPO market in developed and developing countries is that, in developed markets IPOs are dominated by institutional players, while in developing markets, IPOs are dominated by the retail and individual investors. Indian government rules dictates to allocate more than half of equity offering to individual and retail investors. These investor groups do not carry any information regarding the company, as this is costly process. And, these investors drive on sentiment rather than the technical analysis. Extant research on the IPO market concludes that this investor group prone to sentiment than institutional investor, which shakes the entire offering. In case of Indian equity market prolonged issue process, which is nearly two three weeks provide ample opportunities for sentiment driven individual and retail investors to trade based on their excessive interest in an given offering. This makes sophisticated institutional investors to cash the sentiment driven investors to make an abnormal profit during the first trading day. This makes more money left on the table which makes companies to loose substantial amount of money as these grey market prices effect the price revisions during the book building process.
IPO are the biggest source of finance for companies to invest in the growth opportunities. It encourages investment activities in the economy especially in emerging economies by mobilizing funds from the low to
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the high growth opportunities. IPO are the main source for attracting FIIs (Foreign Institutional Investors) who brings large amount of capital and bears substantial percentage in Indian FDIs. So, if IPOs become costly by leaving money in the table, it over all reflects the growth of economy via the affecting the growth of companies. The under-pricing of initial public offerings is a serious problem for any economy. As on the one side high under-pricing tendency in the primary market discourages initial public offerings by those companies which neither afford nor do not want under-pricing. On the other hand it creates arbitrage activities in the secondary market and it also helps in creating the grey markets. The under-pricing of initial public offerings thus hampers the growth opportunities and creates instability in the secondary market. So this section seriously discusses the main problems in the Indian equity market, which really affects the Indian companys capital raising desires. The final part of this chapter which follows will seriously discuss about UK equity market. This section will totally concern on the benefits that these markets offer to international companies that raise capital by listing in their stock exchange.

2.3.UK as preferable choice for Indian companies for International capital raising:Prior sections of this chapter paid more attention to the development and problems in Indian equity market. The following part of the chapter clearly shows how UK (London) is the optimal choice for Indian firms overseas listing. This section, furthermore will provide more information regarding current situation in London and eventually answer the question. How London is an optimal choice for overseas listing and what benefits actually does London offers to Indian firms. Thus the following part starts with answering how London is beneficial for Indian Capital raisers.

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According to Securities and Exchange Board of India more than seventy Indian companies went for International Offerings. Of which, 43 in UK, 10 in USA and 11 in Luxemburg and remaining in other leading stock exchanges. And more than fifteen other Indian Companies are ready to offer to list their stock in London. It raises a question why Indian backed companies prefer UK as primary destination for overseas listing. If they are preferring to raise capital in London Stock Exchange, are they are valued according to their intrinsic value by the UK investors. Table 1 in the appendix part provides number of Indian listed companies in London Stock Exchange. From the above table 1, it clear that 43 Indian companies has listed in London Stock Exchange and raised substantial capital. London Stock exchange contributes as an international market for UK securities and derivatives. London Stock Exchange operated in three platforms Main Market for all the firms, which has to follow strict disclosure requirements, AIM market which is mainly aimed for small size offerings and international offering from emerging markets, PSM ( Professional Securities Market) mainly aimed for debt securities and finally SFM (Specialist Fund Market) aimed for special investment entities. The one reason for Indian companies can be the level of market development. Compared with old established Indian stock exchanges, Londons mature market make a bigger contribution for Indian firms in gaining international exposure and diversifying the investors. Thus, the following section is to demonstrate the various explanations, which shows that London is going to be the best trading platform for the Indian companies. 2.3.1 London-Financial Capital of the World:London is often termed as financial capital of the world and has strategic importance as gateway for flow of funds between Asia and Europe. London is also is one financial centre and is also home for vibrant and large investor group. When considering an example, 70% of total euro bond trading and underwriting activities takes place in London and it is worlds largest forex market. Londons position in geographical and capital size means it provides ideal gateway to Europe capital market. More than two hundred security firms and a couple of hundred international banks have offices in
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London. These firms expertise and services attract capital raisers from all over the world, to make their destination as London. 2.3.2. Equity Market in London:With more than eight hundred international companies activities (introduction, placing, primary offering, secondary offering, international offering, and transferring stocks) by the year 2010, made London Stock Exchange as the Worlds most equity market and more international trading than any other stock exchange in the world. By the year 2010, with more than 3000 companies from 70 countries has listed their stocks in London Stock Exchange. So far, this section appraised position of London Stock exchange, the following part of this chapter is designed address the benefits, that international capital raisers can grab, by listing their stocks in London equity market. London equity market is attractive and most accessible market for both international capital raisers and investors. A London listing has many advantages to offer Indian companies seeking to raise capital and to claim a greater share of the attention of international investors worldwide. Listing in London can help introduce companies to the international investment community and to strengthen the ties with the global investor community. Companies can approach to the world and that the company is an international and well-managed organization. This in turn will increase the investor confidence and interest for that particular company. As a result, it provides a potential capacity to enhance both day-to-day trading in their companies shares and the ongoing corporate funding opportunities for the companies. 2.3.3. Cost of Capital raising:Listing in London Stock Exchange is feasible and cost effective, when compared to other international players. First the companies are admitted to UK Listing authority, an arm of FSA (Financial Service Authority), and then they are allowed to raise capital. Research also proves that there is relation between the cost of capital raising and IPO performance. This cost for companies can be daunting task, where they have to leave certain percentage of their raised capital Rock (1986); Pagano et al (2000); Pagano et al (2002). Although these costs are mandatory for any firms, some stock exchanges in
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countries like UK offer highly competitive price, when compared to other stock exchanges. To understand the cost of capital raising, one has to know the elements, that determines the cost of capital raising

Cost At IPO Stage Direct Cost underwriting fees professional fees initial listing fees other direct IPO costs

Ongoing Cost Direct costs regulation, corporate governance, professional fees annual listing fees

Indirect Cost IPO price discounts

Indirect costs trading costs

Table 2: Elements in cost for listing and raising equity. Source: Oxera Above all the elements, underwriting fees and IPO price discounts plays major role in determining the cost of capital raised. Other direct fees included printing, marketing, and road shows during IPO stages. These are same as of any Western countries with slight differences. Table 2, 3, 4 presented in the appendix part shows costs occurred during an IPO such as listing fees, stock exchange fee and under-writer fees. All other fees are more or equal in both markets.
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From those figures, it can be concluded that, listing in London is comparatively cheaper than its competitors NYSE and NASAQ. Moe over with the amendment of Sarby Oxley act in USA after 2001 made USA more premier than the UK. For all international capital rasiers, the LSE is committed to provide a helpful, flexible and admissions service based on precise standards. Additionally, the London Stock Exchange continually monitor and change its rules to meet the changing needs of international capital raisers. 2.3.4.Greater Analyst Coverage and Higher valuation:The main investor base completely do not invest in India equity market primarily of two reasons; Emerging Market exposure and Government rules regulates not to investment more than specified percentage in speciality stocks. For example FIIs cannot investment more than 26% in insurance and telecom sector. As a result many Indian companies are in line to list their stocks in London for higher valuations and greater analyst coverage. 2.3.5. Valuation Arbitrage:According report released by the Trusted Sources higher earnings are possible in Indian stocks than the international market. However, in some sectors such as manufacturing and minerals extraction Indian valuations are lower than international valuations, and there are opportunities to arbitrage this presumed mispricing. For instance, Indias paper manufacturing giant, Ballarpur Industries, is planning to list its Malaysian subsidiary Sabah Paper Industries in London Stock Exchange partly because it hopes that better valuations in London will help to improve its home stock price. 2.3.6.Foreign capital for global expansion:M&A (Merger and acquisition) deals are the biggest driver favouring London listings by Indian firms. Indian firms invested more than US 17.5 billion outside India in fiscal year 2009 and US 12 billion in fiscal year 2010. This is a long-term process and is likely to gather force over time. The motivation for Indian companies expanding abroad to list in their target markets is to raise their profile and reputation among host consumers, suppliers, financiers and of course investors. Moreover, companies can raise
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capital in major currencies such as EUROs and USA Dollars. These services can help the companies to decrease their exchange risk exposure. A higher local profile can help to increase company sales if consumers gain confidence in the firm. This will also have a positive effect on suppliers. Debt costs will be more manageable if domestic financial institutions reward a higher local profile with better terms. The ability to tap the pool of investors that have traditionally had confidence in the acquired firm, such as British Steel and the Tata-acquired Corus, is useful because it also allows the Indian firm to access foreign currency financing without exposing itself to FX risk if the debt is in the same local currency as the acquired firm.

2.3.7. Under-Pricing:As mentioned in the above higher valuation section, Indian companies are coming to the London for better valuation. Are Indian companies are better valued during the IPO issue process by various market participants. The market participants are investment bankers, institutional investors and retail investors. Dose Indian IPOs are valued according to their intrinsic value or under-priced by under-writers or investment bankers to satisfy their clients. Does Investors give an optimistic price to Indian IPOs? None of the above questions have best explanations to answers. So, this is the gap this dissertation tends to find out, whether Indian IPOs are valued according to market prices or under-priced.

1.4.Conclusion:This chapter initially, discussed major problems faced by the Indian capital raisers in domestic capital markets and concluded that under-pricing and under-pricing in Indian capital markets are problems to Indian companies. So, Indian companies are looking to Western Countries such as London for raising their capital. This chapter also portrayed some advantages that London Stock exchange is offering to Indian companies such as grater analyst coverage, higher valuation, lower cost for raising capital and finally, international capital for global expansion. But under-pricing of Indian IPOs are not
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researched at any point. If Indian companies are better valued, what is the level of under-pricing that makes to leave on the table? So, this gap in the market research inspired to explore the level of under-pricing of Indian IPOs in UK equity market. To explore this under-pricing phenomenon, the following chapter are designed with literature reviews for various researchers in the field finance, who has significantly put forward, various theories, hypothesis and models to explore this under-pricing phenomenon. The next chapters seriously discuss various under-pricing theories and followed by methodologies to explore the underpricing of Indian IPOs in UK equity market (London Stock Exchange). ,

Chapter III.
Literature Review

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3. Introduction:This section portrays some widely cited articles in the field of finance why firms try to list their companies in the overseas and followed by under pricing in public offering. The first part of the literature review, which is also minor part portrays some articles regarding overseas listing followed by second part which consists many arguments based on underpricing. The second part of literature review constructed on the basis of initial day return, which is mainly explained by Winners Curse Model and ex-ante uncertainty, then followed by the IPO short run and long run analysis and factors that affect the IPO price performance such as age of company, issue size, list leading time. This chapter uses asymmetric information theories, for IPO pricing, book mechanism as an offering and finally participation of different groups of investors such as institutional investors and individual investors. In this chapter different IPO asymmetric models are reviewed, which are winners curse model proposed by Rock(1986), the partial adjustment hypothesis propose by Benveniste and Spindt (1989); Hanley (1993) and the principal-agent models on underwriters activities. According to Winners curse model, individual investors lack the information about the companies and follow the institutional investors and demand higher returns. After the Winner curse model B-S model is postulated, which states that price revision during book building process has significant effect on the IPO initial day return. Principle agent model the final model to test the IPO performance based on potential agency problem with the issuers is also proposed after the B-N model.
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This chapter cites several articles, which have practical implications on the methodology chapter. Primarily, this chapter cites various academic literatures based on the IPO under performance simultaneously and accounts for the market features of the London Stock Exchange. Finally this chapter concludes that asymmetric information
models can demand attention but partially explain the under-pricing.

3.1 Literature review on capital rasing and under-pricingMany previous researchers pointed out that, in general most of the companies issue public offering due to the desire of raising capital and entering into the public market. The first formal theory and the life cycle theory figured out that there is relationship between motivation for public offering and takeover. By going for public offering firms increase their market value and thus grease the wheels of the acquisition for a greater value than what they would get from a normal sale (Welch and Ritter (2002); Zingales, (1995). According to Black and Gilson (1998) motivations for public offering may differ from one firm to another and one sector to another. According to Chemmanur and Fulghieri (1999) the motivation for public offering links with the dispersion of ownership within the firm. Early in the starting of the business every firm is private and as they grow sufficiently large they become optimal for IPOs. Maksimovic and Pichler (2001) figured out that good market performance that can influence positively to the product market competition. Researchers pointed out the fact that raising capital in overseas stock exchanges may reduce number of risks that are associated in home country market. These capital raising may be cross listing or primary listing, that actually depends on the home country accounting standards. By listing in the overseas market, firms may reduce the political risk, which enhance their corporate credibility and international recognition Hong and Stein (2003).

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La Porta (1997), Shleifer and Vishnu (2002) report that countries with weak shareholder protections laws, as part in the characteristics of its legal system and effectiveness of law enforcement, have the least developed equity capital markets. In their assessment for the quality of the legal system, these studies by La Porta, et al. include such attributes as the law and order environment, the rule of law, bureaucracy, roots of corruption, and risk of appropriation as components of political risk measures. Gravity model developed by the Portes and Rey (2002) explained that cross border equity raising depends up on the geographical component such as market size, information asymmetry between the investors, efficiency of transactions, lowering the cost of equity by diverse investor pool, and information transmissions are the main determinants. Above all determinates are part of consideration for raising capital from the point of issuing companies or firms. So far it has been discussed a part of motivation and determination for raising capital in overseas stock exchanges. Besides, the following part of the literature review will follow a series of explanations by various authors on under pricing in stocks. Information asymmetry model such as Winners Curse Model and Benveniste-Spindt Model explains the institutional determinates of under pricing where firms try to time the market for more favourable pricing, which in turn maximizes the capital-raising (Lucas and McDonald, (1990); Subramanian and Titman, (1999). 3.1.1. Winners curse Model:Earlier studies on stocks under pricing has included there has been high initial return (so called under pricing) during the listing process, i.e. difference between offer price and initial trading day closing price, in an perfect market situations. The common focus is that how the shares are priced to meet the demand and supply. And these researchers argued that the under pricing is due to the existence of information asymmetry among the investors and discussions are laid, who hold the information, issuing firm, informed investor or uninformed investor Reilly (1973), Ibbotson (1975) and Stoll and Curley (1970).
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According to Rock (1986) there are two types of investors in any given market, the informed and the uninformed investor. The informed or formed investors have precise information on IPOs and while the later or uninformed investor does not have the perfect information. This uninformed investor takes the lead of the informed investor to catch up the perfect price of the stock during the IPOs.

While the informed investors invests in under prices offering, uninformed investor invests both in the under priced and over priced offerings. As the informed investor reluctant in investing the overpriced offerings, uniformed investors get the more shares, as the informed investor does not subscribe. This theory famously knows as the Winner Curse Model. And this Winners Curse Model is postulated by Rock (1986), which is based on Akerlofs (1970) lemons problem. Ultimately, uninformed investor does not invest in any offering, unless it ensures with lower price for compensating them with high probability of initial day return. Moreover uninformed investors has tendency to expect for high initial return than average due to adverse selection problem. Informed investor pressure to have more have shares, when they expect the issue has normal value and with draw from the bad issue, which leaves them with no short run profits (Ibbotson 1975). To add credibility to these assumptions Rock (1986) notes that most aggregate information was with held by the market forces than the uninformed investor and issuing firm itself. And particular this model differs the agency problems as the issuer and investment banks that issue shares have the same amount information. As issuers wants to get higher minimum price, which is above the average price, in the offering, they temp uninformed investor by discounting the shares. Thus according to Winners Curse Model, informed investors better know the value of the firm, than the owners and uninformed investors take the lead of the informed investor Rock (1986). Therefore information asymmetry is the main reason for under pricing of the stock in an offering.

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The under pricing will be minimum, if all the outside investors receives same amount of relevant information about the firms offerings and they truly release the interest. And, this one of the testable implication generated by the Winners Curse Model. Similarly, in vice versa informed investors should have normal return over the overpricing for their information production. However direct test for this model is not possible as investors cannot be differentiated on the basis of information possession, as authorities does not release the investor information Wang (2009). In India, price in the book building is freely available the stock exchange websites (In various western countries such as USA, Europe and even in UK book building method does not reveal the price) uninformed investors can see the prices of informed investors daily and they can follow their own decisions. Therefore book building process reduces information asymmetry in different segments of investors in India. According to Loughran et al (1984) under pricing has reported in almost all equity markets around the world, whether it is a developed or developing economy. Average under pricing in India accounted for 38% and 6% in fixed method and book building route and has aggregate of 17% Ranjan and Madhusoodanan (2004). These researchers studied under pricing in 92 IPOs raised capital in National Stock Exchange and Bombay Stock Exchange between 1992 and 2003. According to Ritter (1984), the under pricing, in which the initial day trading returns, has been for the prolonged issues i.e. as they days are passing during the issuing process, the more the under pricing. For this study he used the hot issue market in 1980, and considered more than thousand issues between 1960 and 1982. For calculating the weighted average initial return, he used simple arithmetic equation for all issues in very calendar month. A monthly time series and initial average return has been developed, allowing the analysis of time series behaviour for the public offering. During the hot issue market, he found out there was an average initial return about 46% and during the normal time i.e. 23 years between 1960 and 1982 the average initial return is 16%. This research also based on the theoretical frame work of underpricing based on the Rocks (1986) Winners Curse Models, theory of initial return of IPO.
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According to Shah (1995) under pricing was nearly equal to 106% in equity offering during 1995-2002, in Indian capital markets. He uses time series regression analysis to find the under pricing of the stocks in short and long term analysis. He also analyzed list delay and sizes of the issue which are also components in the IPO under pricing. But the drawback of this study is that, in long term under pricing analysis, market performance and other macro economic factors plays a role, which he has neglected to consider. Relatively, Loughran and Ritter (2004) finds, changes in the attributes of the firms going for initial public offering. Classical proxies are too small, to explain much of difference in the level of under pricing over a period of time and there is constant relation between risk and return. It is identified that, there changing risk composition is also based on the Ritters (1984), that riskier IPOs are more underpriced than the lesser one. Alternatively but relatively, the Welch (1992) information cascade model, delivers more explanations on information asymmetry. In an informational cascade, investor makes a verdict on the interest of the other investor, and they only request the stocks, which are hot in the market. In support to this argument, Amihud, Hauser, and Kirsch (2003), believes that Initial Public Offering oversubscribes or unsubscribed, with only few initial public offering are moderately subscribed. According to Habib and Ljungqvist (2001) model, issuers most desirable behaviour and generalize the notion to reduce the under pricing by incentives. These researchers argue that, stock issuers will take costly actions, to reduce the level of under pricing to point where, marginal cost is equal to the marginal benefit i.e. marginal benefit can be termed as amount that gained by reducing the level of under pricing. And under pricing will not measure the marginal cost, but it will decrease the issuers offering loss from the under pricing. For resolving the under pricing puzzle it is essential to know, who know what during an initial public offering process (Loffler et al 2005). These researchers concluded in German stock exchange, information asymmetry is main reason for the under pricing and pre IPO prices are highly informative. A part from the above discussion, under
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pricing can be reduced in the public offering by allowing the free flow of information throughout the book building process with in the investor group. The conclusion from the every under pricing theory evaluates that; there is strong relation between risk and return, which is an indirect evaluation for the Winners Curse Model. According to Ritter (1984), if there is a lack of free flow of information among the investors groups i.e. Winner curse; is only reason for the under pricing, the changes in the extent of under pricing, say arising from changes in ex ante uncertainty should be the only reason why under pricing varies over a period of time (Wang 2009). Finally, he finds that industry specific events also drive extent of under pricing, rather than changes in the risk combination of the IPOs. Information asymmetry can be applied to any Western market as the book building is closely done by the underwriters. As the book building is not open to the peoples eye, investors mainly, individual investors lack of information demand higher return. In London institutional investors has good knowledge on Indian companies and Indian macro-economic development. This lack of Information Bridge between investors group constitutes a strong presence of information asymmetry. And this information asymmetry is followed by the underwriters flexibility, whether or not to under-price the offering. Report released by the FSA in 2002, there is rise in institutional investor group and individual investors contributed a minority percentage in total cash turnover in the London equity market. This shows that, large portion of individual investors lack information precisely and as a result, the whole markets asymmetric information level may be aggravated. So far, the above part of the literature review discussed the initial day return of the and intensively reviewed various opinions of different authors on initial day return based on the information asymmetry. The following part of the literature review will base on the under pricing in the short run and long run analysis.

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Post market performance in Hong Kong for Chinese companies is investigated by the Chen et al (2002), which highlights that A-share prices are more underpriced than the B-share prices, during the initial day return. For their investigation, they collected the data of 277 A-share and 72 B-share stocks listed, during the period 1992-95. Theses researchers adjusted stock splits, dividend and right offering to calculate the returns from these stocks. To evaluate, the aftermarket performance, these researchers divided the study into two parts: 1) Initial return on the first day of trading and return after one, two and three years of trading. To measure the study they used performance measures such as Initial return, Market adjusted buy and hold return and Wealth relative index. To examine the cross-sectional determinants of aftermarket performance multivariate regression analysis was used for the Chinese IPOs. They concluded that return on Chinese A-stock offering were very high than the B-share stocks and with the rest of the world offerings. The findings of multivariate regression analysis showed that, macro economic factors affected the Chinese Initial Public Offering under pricing. Researches also argued that under pricing also acts as insurance and shield the underwriters and issuers from the legal formalities Chen et al (2002). According to Alwarez and Gonzalez (2001), Buy and Hold Return (BHR) was used to analyze the initial stock return from the market portfolios in Spanish equity market during 1987-1997. In addition to the BHR model, Fama and French three factors model and calendar time model has been applied, in which the results showed that, long run underperformance depends up on the methodology used. Researchers concluded that long run underperformance exists, with BHR model and not when calendar time model was used. Secondly, they concluded that neither IPO characteristics nor those of the firm in the year prior to going public have significant effect on long run underperformance.

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Gompers and Lerner (2001) examined 3661 IPOs in USA and during 1935 to 1975 for 5 years and explained underperformance existed when BHR method was used underperformance disappears with calendar time and CAR cumulative abnormal returns. The intercepts in Capital Asset Pricing Model and Fama French three-factor regressions are different from zero, explaining no abnormal performance. Finally, these researchers explained present IPOs under pricing contained information about the future public offerings. Ritter and Welch (2002) explained three main considerations i.e. why companies go for public offering, why do firms reward all first day informed and uninformed investors and how public offerings perform in long term. These researchers explained Life cycle theories and Market timing theories, with theoretical and empirical evidence for short run and long run performance of public offerings. First of all, they also concluded that measurement for performance of IPOs depends up on the methodology and secondly, Famn and French model produces odd results. Studies conducted by the Foerster and Karolyi (1999); Johnson and Miller (1988) analyzed weekly abnormal returns for two consecutive years in US cross-listing by establishing an American Depositary Receipts program. The result is firms that crosslist through ADR issuance eventually experience an unexpected increase in their stock price, of about 10% in the year before the listing. However, this unexpected increase is followed by a decrease of some 9% in the year after listing. Miller's (1979) study focuses on the 80 days around the cross-listing event and finds a positive 1.15% average abnormal return for 183 ADRs between 1985 and 1995. Other studies, like Alexander, Eun and Janakiramanan (1988), Foerster and Karolyi (1993) all use a similar approach to examine the stock price reaction when firms cross-list in the US. The evidence is of a positive price reaction to cross-listing. In addition, Alexander, Eun and Janakiramanan (1987), and Miller (1979) all find evidence that confirms the prediction that the cost of capital declines following the cross-listing. Pastor and Veronesi (2003) used regression analysis to measure long run IPO performance and noticed 16 IPO waves between 1960 and 2001. Aggregate ration, market return and market volatility used by the researcher formed theoretical framework
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on different aspects such as valuations, timing and waves of IPOs. Their research with empirical evidence shows a presence of long-run underperformance in IPOs. According to Vaidayanathan (2007) IPOs are underperformed in NYSE when there is a huge demand during the book building process as result a huge amount of money is left on the table. So far this section of the chapter has cited numerous articles on IPOs under-pricing based on the information asymmetry model proposed by the Rocks (1986) Winners Curse Model and IPO short run and long run underperformance. Following part of the literature review will focus on the other IPO underperformance models such as B-S model and principle agent model. 3.1.2 Benveniste-Spindt Model Principle Hypothesis Model Another explanation that investigate how underwriters i.e. investment bankers use price indications primarily from their clients and secondly from the individual investors to determine the price of an offering and allocate shares to the investors. If some investors mainly from the individual investors know the value of the company than other investors or issuing firms, then it is going to be concern for the underwriters to take the firm to the public. Book building is the most popular mechanism to determine the price, by collecting the information based on the demand and shows interest in to adjust the price levels. In this scenario, the investment bankers have tendency to follow a sequence of more IPO share allocations and underpricing, for those who reveal their true interest in buying the shares. Benveniste and Spindt (1989), model which is based on the Baron and Holmstron (1980), showed how underwriters how their discretion allowed to allocate more shares to their clients. These investment bankers use the interest of their clients as indication to price the initial public offering. And the investors, who are clients to the investment bankers, provide the valuable information they possess to the underwriters, about the value of the IPO during the preliminary filling stages. For this, the underwriters provide more discounted shares to the clients, with the privilege they possess as compensation. These underwriters also, do not indulge this
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information to the offer price of the IPO. Spatt and Srivastava (1991) are consistent with Benveniste-Spindt model and show that book building method allows underwriters/investment bankers to induce investors to reveal their information truthfully, by underpricing and discretionarily allocating new shares. Price revision and share allocation constitutes to the two major important parts of the book building theory. The following will summarize the share allocation mechanism to the investors in the book building theory. 3.1.2.1Price revision and share allocation during book building process:One of the major components in the book building theory, which concerned with how the lead banker/investment banker/ underwriters incorporate the information revealed during the book building process. And this price revision has direct relation to the initial day return. Initial public offering documented by the Hanley (1993), constructed a partial adjustment phenomenon in which he found that, there is strong relation between price revision and initial day trading return. This theory is consisted with the Benveniste and Spindt (1988) which states that investors are loath to reveal the truth price about the issue and this will automatically increase the share price, which they have to pay. Book building method extracts the information from the investors and adjusts the offer price according to the demand. According to Sherman and Titman (2002) information asymmetry should affect the price adjustment in book building process. Ljungqvist and Wilhelm (2002) also argue the offerprice reflects a conditional expectation. Underwriters compensate the informed investors with more discounted shares for revealing the truthful information. However, underwriters do not entirely adjust their pricingupward to keep underpricing constant when demand is strong. Therefore, finally there is a positive relation between the underpricing and price revision. According to Loughran and Ritter (2002), underwriters do not fully incorporate the revealed
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information is freely available in any market and underwriters do need to compensate the investors. Alternately, these researchers proposed prospect theory, which states that investors care about the wealth change than the money left on the table. Lowry and Schwert (2001) investigated the entire Initial Public Offering (IPO) pricing process, beginning when the offering is filed; their research contributes to the existing literature along four dimensions. They concluded there exists for types of price revisions based on the market condition and their study provides further evidence provided by Loughran and Ritter (2002); Shleifer and Daniel (2002). First price revisions will base up on firm and offer-specific characteristics, secondly price updates based up on market movements prior to filing date as well as during the registration period. Third, positive and negative information revealed during the stock registration period affect the offer price asymmetrically. Finally, public and private information learned during the book building process. And this price revision will have positive impact on the initial day trading return Lowry and Schwert (2001). So far this section cited articles regarding the price revision during the book building process, following part of the section will cite the articles related to the discretion during the share allocation. According to Benveniste and Wilhelm (1990), investment bankers or underwriters, use the given opportunity to allocate Initial Public Offerings among both individual and institutional investors, would maximize proceeds by using a combination of price and allocation discrimination. There model suggest that, IPOs are allocated on the discretion to maximize the profits particularly to their clients, by providing more discounted shares. And these researchers support the Hanley and Wilhelm (1995), conclusion which states that, short run profits are associated more with institutional investors, by large fraction of IPOs with in USA. Hanley (2002) documented a relation between the final offer prices and anticipated offer prices in the red-hot IPO prospectus, is a good indicator for the initial day return in the IPOs. When the final offer price exceeds the offer price ranges, there should be greater tendency to more underpricing and release the more shares than the announced share price. The documented results are consisted with the findings pricing and allocation
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strategy proposed by the Benveniste and Spindt (1989), in which shares in an IPO are rationed and prices are adjusted during the offering with the information. Boreiko and Lambardo (2010), concluded there is discretion in allocation of shares, in which maximum shares are allocated to the institutional investors than the retail investors in Italian IPOs. Claw back clauses such as money benefits, a typical instrument of Italian Initial Public Offering, allow the syndicate to shift shares ex post from the retail to the institutional investors in a discretionary fashion. They also concluded that retail investors end up buying more shares in the less economical IPOs and their expected profits are relatively small in an economic level. The empirical results support the Benveniste and Spindt (1989) theory of discretion strategy in share allocations. According to Sherman and Titman (2002) under witters use the discretionary mechanism to gather more information during book building process. Once issue being costly and accuracy is not relevant, underpriced shares are allocated to their clients, for revealing the private information. However, accuracy is relevant; number of investors will be proportional to the level of underpricing, which is also recognized as to earn the economic rents. Lee, Taylor, and Walter (1999) and Jenkinson and Jones (2004) directly tested the decretory allocation, which is main part of the book building theory. These results are agreed with the partial adjustment hypothesis. But the drawback of this research is that they used private data-base for the research, which consists of small number of samples and empirical investigation seems to be difficult due lack of the accurate data. Further research by Aggarwal, Prabhala and Puri (2002) concluded that, there exist a close bond between IPO shares allocation and initial day return. As the under pricing in the IPO is a worldwide phenomenon, there is a difference between USA-UK and Indian allocation strategies. In India, allocation has to done by government rules and regulations, where as in most of the countries shares allocated on discretion. Cornelli and Goldreich (2001), looked more closely in shares allocation strategies by the investment bankers and concluded, allocations are related to special characteristics of more informative indication of interests, for example the level of bids
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with price limits placed by the individual investors. And this conclusion also supported by the Cornelli and Goldreich (2003). According to Jenkinson and Jones (2004), shares allocation are based on whether the investor is going to hold the stock for a longer period, but there is a limitation on this study a there is constraint on the data availability, to support the empirical evidence. Multivariate approach used by the Ljungqvist and Wilhelm (2002) on international data, push forwarded an argument IPO allocation, price revision and initial returns are jointly determined. They remarked wide spread of allocation strategies in book building process and concluded initial returns are directly proportional to information production and inversely proportional to institutional allocations. Close to USA and U.K., there is a regulatory requirement on IPO share allocation and requirements of the claw back provision in India. India always advocates fair dealing with small and individual investors. Interests and subscription demand from the public offering tranche are apt to receive more attentions from underwriters. Indias high disclosure standards allow this part of chapter to assess the effect of allocation strategies on price discovery and initial returns. As stated in Cheng, Chan and Mak (2005), underwriters use non-discretionary allocation of IPOs to favour small investors in India. They finally conclude that the results are driven by the regulatory requirement by the Indian government. It is worthwhile to note that the theoretical paradigm in the Initial Public Offering literature has no systematic or empirical evidence to support the nature of the private information released by investors groups. In practical business, there was always a preroad show marketing, though which investment bankers and prospective investors interact extensively before book building. In such a case, their interests and expectations may have already influenced the preliminary price range (Wang 2009). There are other channels for the pre-selling information leakage in India. Existence of grey market in many Indian cities for new shares sometimes even starts before trading and during the peak period of book building process. The extent of impact in pre-road show marketing has been primarily noticed by Jenkinson, Morrison and Wilhelm
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(2006). In many markets outside the U.S and UK, this interaction may begin with the pre-selling research by analysts, whose book building evaluation will often involve prospective investors view. The survey conducted by the Jenkinson and Jones (2007) also provides valuable verdict on this issue. However, currently it is not feasible to define the source and details via assessable data. So far this section of has cited a number of articles, on share allocation and price revision, the following will be based on another information asymmetry model. 3.3 Principle Agent Model:Investment bankers possess significance role during the IPO process, as they possess and process valuable information and they also have powers to allocate the shares at discretion. Many book building theories emphasize on the role of investment bankers in the book building process. This chapter isolated this asymmetric information model with other model but the key condition and content are common. Loughran and Ritter (2004) discovered the negative aspects of the institutional arrangements, by pressing the potential agency problems between the issuing firms and the investment bankers. Assuming that if the investment bankers possess more information than the issuing firms, they demand for the more incentives. And this information gap lays bridge for agency problems between the investment bankers and the issuing firms. Baron and Holmstrom (1980) and Baron and David (1982) constructed a number of series models to the incentives that investment bankers during the IPO process. To induce advantageous use of the investment bankers higher information, the issuing firm make investment bankers as nominee to the pricing decision. Given its information, the underwriter self-selects a contract from a menu of combinations of IPO prices and underwriting spreads. Once assuming the determinant power of market demand, todo this can optimize the underwriters unobservable selling efforts. According to Beatty and Ritter (1986), if the underwriters under price to much, they lose credibility in the client market. Carter and Dark (1990) and Carter, Dark and Singh(1998) also concluded that there is relationship between underwriter reputations
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on the initial day IPO return and to add credibility to their arguments, they added empirical evidence to their research. Therefore the more the underwriters reputation, the less the initial day and short run under pricing. Nanda and Yun (1997) and Dunbar (2000), if there exists a series of more under pricing from an underwriter, then they will lose their reputational capital in the client market. Louge (1973) researches on the USA IPO market for four years and came to conclude that, investors who purchased at the IPO has quickly achieved high systematic profits. His research concerned in the pricing decisions of the investment bankers and systematic high returns during an IPO. He developed a proxy to characterize the underwriters reputation and IPO initial return, which is supported by the Beatty and Ritter (1986) and Manaster (1990). Carter and Manaster (1990) first successfully developed a proxy to measure the underwriter reputation and IPO initial systematic return, by using a large sample from the period 1979-1990 in the United States. Carter, Dark, and Singh (1998) concluded that, in a pool of proxies developed by various researchers such as Cater and Manaster (1990), Johnson and Miller (1988), and Megginson and Weiss (1991); Carter and Manaster (1990) reputation ranking proxy is the most significant in terms of short-run and long-run IPO performance. This argument is also supported by the Dunbar (2000). Although, Carter and Manaster (1990) proxy is based on the USA equity markets, investment bankers has branch/office/ subsidiary in the London. The newly formed London boutique investment banks are established by the former employees of these multinational banks. And the reputable bankers have the most significant business in the London equity market. Moreover, Indian large sample of Indian IPOs has used the service of reputable bankers, which has offices all over the world. According to the Dunbar (2000) less reputable bankers is placed under above average risk due to high ex ante uncertainty. He summarizes investment bankers share in the market for IPO returns, compensation received, industry specialization, analyst

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reputation, and IPO with-drawls. According to the researcher, most reputable bankers have higher information than the less reputable banker. Beatty and Welch (1996) finds a positive relationship between underwriter reputation and IPO initial return, which opposes the Rocks (1986) theory which states that less the ex-ante uncertainty less money left in the table. Most reputable bankers has larger amount of information which reduces the under-pricing, but Beatty and Welch (1996) founds a conceivable reputation between the reputable banker and return. And, this research has drawback as too empirical results are too sensitive for the period. Beatty and Welch (1996), research has been opposed by the Dunbar (2000), which states that most reputable bankers accepts only offerings which has low risk profile, so there should be less under-pricing. An argument developed by the Loughran and Ritter (2004), is that investment bankers, enrich themselves and their clients by strategically under-pricing the IPOs. Another argument is that, top banks have lowered their criteria for selecting IPOs to underwrite, resulting in a higher average risk profile as well as higher under-pricing for their IPOs Wang (2009). Companies heading for the offerings make the choice of lead baker, months before the initial trading day. Thus institutional and individual investors utilize this time period for considering their participation and initial return. According to Habib and Ljungqvist (2001), issuers do not pick up lead bankers and other institutions randomly, nor do banks randomly agree with every offerings made by the companies. In this scenario, the offering agreements actually are made by optimizing agents. They generalize the notion that issuers have an incentive to minimize under-pricing, and hiring a reputable investment baker and underwriting syndicate may help to reduce the potential loss to the firms. Chen and Ritter (2000) research one of the most cited paper on IPO under-pricing on the seven percent solution among investment bankers in the U.S, underwriters will not prefer a blind agreement through cents of promotion. This leads to average percentage of commission through the industry. He used US market for research as there is an average seven percent charge for the IPOs.
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According to Ljungqvist (2003) compensation paid by the issuer to the investment banks should reduce the agency conflicts and reduce the subsequent IPO under-pricing. Loughran and Ritter (2002) also develop a prospect model which explains how the investment bankers maximize their wealth during the wealth transfer from investor to issuers. And this model is supported by the Wang (2009), which focuses on the covariance between the amount of under-pricing and wealth changes of underwriters. The empirical results conclude that there should be partial adjustment in the IPO market and the under-pricing is another form of compensation to lead bankers and underwriting syndicate. So far, this chapter seriously reviewed information asymmetry models such as Winner curse model, partial adjustment hypothesis and B-S model, principle agent model which focus on the agency problems and finally literature on short run under-pricing and long terms under-pricing. However, none of the above theories cannot give the direct answers for Indian companys overseas listing activities in London. There exists a current gap in the academic literature, which inspire investigation on under pricing of Indian companies in the London Equity market. Thus following chapter provides empirical investigation on series of information asymmetry models, on Indian overseas IPOs.

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Chapter4:Whether London is an good platform for Indian companys overseas listing. An empirical analysis on under-pricing!

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4. Data Collection and Methodology:The main aim of this chapter is to find level of price appraising of Indian companies in London. The initial return on public offering can be calculated using simple mathematical formula. The price difference between initial day closing price and the offer price. The initial day closing price can be obtained from the London Stock Exchange (LSE) and offer price can be obtained from the either respective websites or Yahoo or Google finance websites. Moreover the offer price has double checked with IPO prospectus of the companies, which are also readily available in respective companies corporate websites. The IPO prospectuses are also available in Thomas One Banker financial application. This chapter covers the part of the objective of the study by knowing the under pricing of Indian firms in London Equity Market. 4.1 Data Collection Depth interviews with the top executives is the primary data collection method in business and management studies, but the time constraints and financial resources drags back to use the secondary data collection methods such as desk research. More often in
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this present era of globalisation huge amount of secondary data is available in multiple ways and it also fulfils the research objective. This research will primarily use the secondary data from the research papers, market research reports leading journals and newspapers such as Wall Street chronicle and Financial Times. Internet is cheapest and useful resources in providing the secondary information. When all this moulded together, they provided rich information as secondary data to achieve the part of objective for this research. There are more than 4700 listed companies in London Stock exchange. For this study the companies listed from 1999 is used in which there are 43 Indian companies from a total of 789 companies. UK domestic companies are excluded from the study. Indian companies constitute nearly 5.069% of International listed companies from the year 1999 to 2011 and raised more than 10 billion pounds. This study is based on the secondary data, which is collected from various journal articles, London stock exchange websites. For firms coming under the London stock exchange, IPO prospectus has been downloaded from the LSE website. Additionally, National Storage Mechanism of UK and Financial Services Authority website is used for UKLA (United Kingdom Listing authority). The regulatory filling and other IPO prospectus is available on above mentioned website. Part of this chapter also uses leading journals, and Oxera website for gaining in-depth understanding. As mentioned above, an important factor motivating data collection is triangulation. The basic tenant of triangulation is that the weakness of a single generation source is compensated by the counter balancing strength of another method/source. Therefore, the researcher will aim to establish a chain of evidence by utilising multiple secondary data sources thereby enhancing validity and reliability. 4.1.1These data collection methods include prices of those companies, which satisfy the following criteria.
1. IPOs listed in the London Stock Exchange for initial day return. 2. IPOs listed in the London Stock Exchange and traded for one week, one month

and six months for short run analysis.

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3. IPOs listed in the London Stock Exchange and traded for one year, two years

and three years on time series for long run analysis.

4. Short run analysis:- For London stock exchange, all public offerings with Global

Depositary Share as an instrument, often termed as equity share, listed on the time period from 1999-2011. The total number of companies nearly is 43. For short run analysis a time period of one week, one month and six month is taken.
5.

For Long run analysis:- For long run analysis, all IPOs with GDS offering has been used with time period from 1999-2011. For other countries international offerings in London Stock Market, a total number of 43 IPOs will be used. The time period for long run analysis one year, two years and three years is taken to achieve the objective.

6. For the factors affecting IPOs price performance analysis, the age of the

company, size of the issue (Offering) and List Leading time is considered.

4.1.2. Hypothesis:The hypotheses which are considered for the study are as follows. 1. There is no relation between firm age, issue size, listing lead time and pricing performance of IPOs. 2. Long run under-pricing should be more than the short run under-pricing. 3. According to the Winners Curse Model due to information asymmetry causes adverse selection problem, in which new shares should be under-priced for the participation of individual investors. Thus, ex-ante uncertainty and under-pricing should be positively related. 4. Based on B-S model, price revision during the book building process, information acquired from the different group of investors. Therefore underwriters pay investors with under-pricing as compensation for releasing their interest. Thus, large price revision should reflect large under-pricing. 5. As reputation capital is most valuable commodity for the underwriters, IPO short run under performance should be inversely related to the underwriter reputation. However, rent seeking behaviour adopted by the underwriter, there is a positive relation between reputation and under performance (short run). 10024495 Page 54

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4.2 Methodology:This section of the chapter is the direct test to the Winners Curse Model. According to the Winners Curse Model (Rock 1986) and the principal agent problem to the extent of underwriters activities there exists a relationship between initial day trading return and ex-ante uncertainty in the uninformed investors. The research ensures that uninformed investors expect higher return in the new shares based on their decisions. 4.2.1. Analysis of Indian IPOs under-pricing for initial trading day To calculate whether, a stock price has been valued at its intrinsic worth or not and to determine the degree of valuation deviation of the equity market price of the respective stock from the offering, return has been computed For calculation following two considerations were used:1. If the returns were positive, stocks are underpriced. 2. If the returns were negative, stocks are overpriced. The initial return on public offering can be computed as difference between first trade day price and the offer price. This return is the investors return. Ri = {P1-PO / P0} * 1OO--------------EQ (1).
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The summary descriptive statistics of the initial day trading return or first day trading return is presented in the Table 6 in the appendix part. The average initial under-pricing of the Indian companies in London Stock Exchange is 11.4%. There is needed to take a closer look by year by year basis of the Indian IPO offerings in London equity market. The primary reason is that equity trading and market performance is also affected by the market environment; it is worthwhile to look on year-by-year base. So, table 7 presents the extent of under-pricing of Indian firms from the year 1999-2011 on year on year basis. When considering the years, the years 2003 and 2011 were not considered as there is no IPOs from the Indian side. Table 7 in the appendix part shows the descriptive statistics for the Indian companies under-pricing according to the year. From the sample taken there is lowest initial return is in the year 1999 3.8%. Only one company actually listed in the London Stock Exchange during that year. And in the year 2008 the extent of average initial day trading return is 15.2%. And this particular year also only one Indian company has listed its stocks in London Stock Exchange. When considering multiple companies the year 2004 has average highest initial return of 12.675%. Investor return is only valid in a perfect market condition, where unaccounted time gap and no opportunity costs are present. In this scenario, opportunity cost can be described as application fee and money deposited with the application. If this particular condition is not fulfilled, investor return has to be adjusted with the market adjusted return. In UK time gap for IPO offer closing and first day of trading lies between 5-10 days. During this time period there are chances for there are major chances for major turnover in the market or economy. For example, during this period, statics releasing about sector analysis, employment rate, and wilful corporate fraud have will have dramatic effects on the exchanges. And this in turn will affect the initial day trading return, which ultimately affects the investor. To be more precise, reveal of Satyam computers fraud in India, Enron fraud in USA has an effect on market indices and to the respective sector too. To overcome this type of particular situation Market return adjusting the Initial day trading return. Therefore investor return estimated by the equation can be adjusted to

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RM.Adj = [{Ri} {(M1-M0)/ M0}] * 100---------------EQ (2).
1. RM.Adj = Market adjusted investor return 2. M1 = Market index closing value of first trading day trading of offered stock 3. M0 = Market index closing value of offer closing day.

The descriptive statistics for the market adjusted return is presented in the table 8. The market adjusted return for the sample period is 10.74%. From the sample taken there is lowest market adjusted return is in the year 1999, which is 3.65%. And in the year 2008 the extent of market adjusted return day trading return is 13.9%. The level of changes in market adjusted return does vary over time, which may provide a suitable reason for expectation of market timing theory. Again, the changes in market adjusted return reflect the economic crisis period 2008. There is one point to consider in this research is that; initial investor return in London Equity market is significantly lower than the Indian companys domestic offerings. Both the countries prioritize, book building method as offering mechanism. In Indian, average initial return tends to be between 47% and 242%. Which these figures shows that huge amount of money is left on the table. So, London offers a good platform for Indian companies to raise capital in International financial market. Thus, this section generally completes that London equity market is good platform for Indian companys International capital raising trends. To conduct an in-depth research on Under-pricing, does London offer a good trading platform for only Indian companies or other international companies too? So the following section of the chapter is designed to research on other International companys equity offering trends. To be precise, the chapter finds the under-pricing of other International companies in London and compare with the Indian companies.

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4.2.2.Comparative analysis of Indian and Non-Indian IPOs:As main aim of this chapter is find, whether an overseas listed firm tend to have more under-pricing due to asymmetric information, this section of the chapter further more splits observation into Indian and non-Indian other International offerings. The comparison of offering character of these two groups Indian and non-Indian (other International equity offering in UK) is presented in the following table. The period from 1999 to 2011 is considered as the sample period. During the sample period non-Indian companies average investor return or initial return; often termed as under-pricing is significantly higher than the Indian firms. The sample consists of seven hundred and eighty nine companies from the year 1999-2011. A comparative analysis table for Indian and other International offerings are presented in the table 9. Graph 2 presents the extent of under-pricing this clearly shows that the under-pricing of the Indian firms is much lower than the other international offerings. By looking at the data, we can conclude that ex-ante uncertainty is present in the London Equity market. But, investors trusted and gave a good price to the Indian companies. As stated above, the investor return or initial return Indiana is lower than the Non-Indian companies. To list on the London Stock Exchange, Indian companies hire reputable and experienced bankers to underwrite their International offerings. These companies assured themselves that experienced and reputable bankers are capable to ensure a successful offering. As a result, under-pricing lies below the average underpriced margin in the UK equity market. Moreover, Indian companies also likely to time their offering to take the advantage from the Window of Opportunity. But this argument is considered on general analysis only and to support this argument, empirical evidence will be provided in the following sections. Thus briefly, this section of the chapter empirically analyzed the Indian IPO initial returns and compared with the other international
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offerings. To support the argument whether London is good platform for raising capital, the following section of the chapter designed to analyze the extent of Indian IPOs price performance in short and long run analysis. 4.3.For short run and long run analysis the following formulas will be used: So far this chapter has analyzed level of under-pricing of Indian companies and NonIndian companies IPOs (excluding UK) and difference between them. The following part of the chapter aimed to investigate the short term and long term under-pricing of Indian IPOs. In order to compute the short and long run analysis, this section uses the Buy and Hold Return which is consisted in the standard empirical literature used by the Rock (1986); Ritter (1991) and Aggarwal et al (1993) will be used. If the stock price was unavailable, intervals were taken, for a window of two to five days has been considered and the closest share price date has been selected. The following formulas are used to deduce the short term and long term under-pricing. Rit= {Pt-P0 / P0} * 100---------EQ (3)
1. Rit = Investor return for short run and long run analysis. It is the return of the

stock after a time t.

2. Pt = Stock price closing at given timet. 3. P0 = closing offer price of the stock to the inventors.

For Market adjusted investor return is: RM.Adj.t = [{Rit} {Mt-M0 / M0}] * 100-------EQ (4).
1. RM.Adj.t = Market adjusted investor return at a given timet. 2. Mt = Index closing value at timet. 3. M0 = Index closing value on listing time of the stock.

In London stock exchange, all Indian public offerings with Global Depositary Share as an instrument, often termed as equity share, listed on the time period from 1999-2011. The total number of Indian companies in the sample is 43 out of 827 international
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offerings during that period. For short run analysis a time period of one week, one month and six month time frame is taken. The results are presented in the following table. First column represents the time frame for the short run analysis and next two columns represent the investor return and market adjusted investor return. These investors returns are compared with market adjusted return which are calculated taking into consideration of FTSE 100 index (this is to represent the equity market behaviour with exact time span). Table:- 10 Comparing Short Run analysis of Indian IPOs. Time Frame Investor return % Initial return One week after the listing day One Month after the listing day Six months after the listing day 11.04 13.6 15.6 17.48 Market adjusted investor return % 10.74 12.9 12.2 16.92

To look at overall returns via each year results are placed in the table 11 in the appendix part with mean value. The returns thus calculated are the investors returns for a period of one week, one month and six month time period, after listing day, so as to analyze the price performance of an IPO. But to know the extent of under-pricing it is worthwhile to look year by year with exact time frame i.e. time frame vs. investor return. So the Table 12 for one week analysis; table 13 for one month analysis and table 14 for six months analysis which shows year by year of short run analysis of Indian IPOs are presented in the appendix part.

Graph: - This graph clearly shows the extent of under-pricing of Indian IPOs in short run analysis and returns and time frame are presented in the graph. As we can see that the return are increased over a period time. The investor initial return is low and dramatically increased over the short period time. Also the market adjusted
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return is also not showing the much variation with the investor return. These results showed that the extent of under-pricing of Indian IPOs, which generates more income to the investors six months period than the initial day trading period. In short, this section of the chapter completed short run analysis of Indian IPOs and concluded that there exists more under-pricing in short run. So, next section of the chapter designed for determining the Indian IPOs price performance or under-pricing in long run. The reasons for the under-pricing in short run will be discussed in next section of this chapter after evaluating Indian IPOs price performance in long run analysis.

4.4 Long-Run Analysis:Generally when investing in risky securities such as stocks and IPOs, investor envisages about his long term returns. The returns after one year, two years and subsequent years are generally termed as long terms returns, if an investor invests today in an investment. IPOs are generally regarded as good investment in for a short period of time. As it is proved, in the earlier section IPOs are generally regarded as good investment in short term. Do IPOs are considered as good investment for long term? Do they provide good returns in long run also i.e. does IPOs are under-priced in long run also? The answer to these questions, Initial Public Offerings price performance in long run is presented below. Buy and Hold returns can be calculated with the help of offer price and the closed price of the stock at particular period. It can assess the change of wealth of investor from a sample group of IPOs by assuming that, the same amount of money passively invested in the initial day and held for a specified period (excluding initial day) Sahoob and Rajib (2010). And here arises a question, do BHR method is suitable method for calculating the long term returns for IPOs?

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Diverse works has used different methods in analyzing the long term IPO returns, popular means of methodologies include Cross section correlation returns Brav (2000); Value Weighted method Loughran and Ritter (2000); and most widely used method is BHR. Every method has its own pit falls and distinctive advantage over the other. This section of the chapter explains methodology with the help of Buy and Hold Returns for calculating the long run analysis. The main reason behind this decision is that it most widely used methodology in the IPO long run analysis, as if all other methods were often compared with the BHR. Another reason in short, according to Fama (1998), all the methods used for IPO long run under-performance are subjected to problems arising from poor specification of models and no method is able to minimize this problems but BHR model. Even close models also give different estimations for abnormal returns lvarez and Gonzlez (2005). Moreover, the long-run event studies of stock returns aim to assess the value of investing in the average sample firm with respect to an appropriate benchmark over the horizon of interest, that is why the correct measure is the buy-and-hold return (Barber and Lyon, 1997). Long-term investor experience is better captured by compounding short-term returns to obtain long-term buy-and-hold returns. In addition, cumulative abnormal returns are biased predictors of long-run buy-and-hold abnormal returns lvarez and Gonzlez (2005). The mathematical part for calculating the long run analysis is Buy and Hold Return and formulas is as follows. Investor return in long run:-

Rit= {Pt-P0 / P0} * 100

stock after a time t.

1. Rit = Investor return for short run and long run analysis. It is the return of the 2. Pt = Stock price closing at given timet. 3. P0 = closing offer price of the stock to the inventors.

For Market adjusted investor return is:

RM.Adj.t = [{Rit} {Mt-M0 / M0}] * 100

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2. Mt = Index closing value at timet. 3. M0 = Index closing value on listing time of the stock.

The overall returns are presented in the following table 14. The returns thus calculated are the investor returns in the long run analysis taken on the first day of the trading, one year of the trading ; two years of the trading and three years of the trading. The returns showed in the table are the mean returns for all the years taken from the sample. The market adjusted investor returns are presented in the table 14 with the mean values taken from the sample for 1999-2010. The calculate the long run returns for the year 2010 is not feasible, because of the very low time period for IPO listing date and calculating date. Table 15:- Investor return and market adjusted investor return in long run analysis. Time Frame Investor return Market adjusted investor return Initial return One Year after the listing day Two Years after the listing day Three Years after the listing day 11.04 22.4 -6.31 -2.5 10.74 17.34 -2.45 -1.9

. As we can see from the table is that investor return are increased from the first trading day to first year of trading. From this point the returns are decreased. The results reveal that the, independently of the bench mark used, the existence of returns, under-pricing in the first year of the stock trading. So the initial investor returns are presented according to year for one year analysis and two year analysis and three year analysis in the table 16, 17, and 18. It is clear result shows that clear existence of long run underperformance or under-pricing in the first year of IPO listing. However, the other two time horizons, two years and three years, the results are wide spread negative returns. The results for the short run analysis are consistent with main result and with the classical expectations of the Winners Curse Model i.e. high ex-ante uncertainty related to the issuing company followed by the under-pricing. But previous results concluded
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that the under-pricing is comparatively low with other international offerings. From the descriptive results it is clear that the Indian IPOs are under-priced in a short run and the extent of under-pricing in greater than the initial under-pricing. The highest difference can be found in the year 2010; the extent of under-pricing is significantly higher than the initial day investor return. Moreover investors returns in short run i.e. one week, one month and six months are higher than the initial day trading return. This possible action can be explained with the help of the changing risk composition hypothesis developed by the (Loughran and Ritter, 2004). To correspond in nature, they obtained significant empirical results in this case. These researchers indicate, that primary reason for this type of situation is that, although Ritter (1984) analysis of ex-ante uncertainty is the reason for under-pricing, another factors such as firms characteristics can result in further more under-pricing. These factors during IPO listing include, change in firms capital structure, improving in corporate governance and change in financial position to meet the high level of listing standards. So, if the firms change these types of factors before IPO listing, it will have significant effect on IPO pricing in short run. When comparing these arguments with Indian companies, most of the companies reduced their debt percentage and improved corporate governance to meet the higher standards of listing of UK. Except for the Unitech Corporate this is having high level of corporate governance and high level of debt during the IPO. Unitech Corporate share price is more under-priced than others due to its debt in capital structure. These changes are too minor to explain much of the variation in under-pricing over time if there is a stationary risk-return relation. All these arguments are based on general analysis, to support the argument about the factors related to under-pricing will be researched on the next section to the deepest extent. The empirical evidence confirms that the under-pricing is much more in short run than the initial trading day returns and long term trading day returns. This empirical evidence is also consistent with the Divergence of Opinion Hypothesis developed by the Miller (1997) and supported more empirically by Miller (2000); Houge et al (2001) and Diether, Malloy and Scherbina (2002). The uncertainty in investor group regarding
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Indian IPOs attracted overvaluation on the listing day followed by the underperformance in short run. Magnitude of uncertainty or opinion among the Initial Public Offering investors and short run under-performance is positively related. This can explained with the evidence that optimistic investor groups tend to buy stocks directly from the market. Diversified opinions among the optimistic and pessimistic investors, results in the overvaluation of an IPO. Aftermath, information flows to the all levels of investors and subsequent correction take places. As a result there is more under-pricing in short run rather than the initial day trading return. Another classical explanation which is an interesting aspect of this research is that the Indian companies have taken the chance of Window of Opportunity. This theory is developed by the Ritter (1991) and supported by the Loughran and Ritter (1995). The years 1999 and 2000 saw a significantly lower Indian IPO returns in the sample. Indian firms have significantly issued their offerings during the higher valuation returns. As a result, investors overvalue the firms, because of the peak stage in the IPO market. So the initial returns are just 3.5, 7.8 and 7.5, so Indian companies has taken the advantage of IPO market. However, Indian companies in the subsequent periods, failed to justify the valuation given by the investors, as a results the market quickly adjusted with real valuation. The evidence is that in six months time frame the returns are 11.24%, 17.34% and 15.85%. In another scenario, this short run analysis can be explained with the help of the Krugmans (1998) example. There exists an inverse relationship, might be that of the higher risky firms taken the IPOs into the market, during the hot IPO period, when the investors expectation regarding the companies and returns are high. A high optimistic investor, relatively value a IPO keeping in the mind that, positive returns are expected and risks associated are neglected. Investors have not taken the negative side of their investment and proceeding randomly with their investment. In a modified version of Krugmans (1998) example might better explain this scenario. Suppose there exists an investment opportunity that would yield 200 pounds in good state and 100 pounds in bad state that are equally likely. So the investor in good state
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ready to offer 150 pounds to be more likely (Probability is ) than that of the bad state (Probability is 1/4) and ready to offer 175 pounds. In such an environment even highly risky IPO offer lower return and resulting in the lower initial IPO returns. If this scenario or assumption is correct, under-pricing should be low in initial trading days and then increase in the subsequent periods. From the above explanations it seems to be clear, those investors invested in the Indian IPOs judged the negative side or risk content of an new IPO offering from the ex-ante observable characteristics and the risk-initial return trade off what is exactly showed in the literature and works done by the previous researchers. Another possibility is that Indian IPO issuers have taken the advantage of collecting money from the investors to maximum extent. The enthusiastic investors about the offering paid relatively higher price about the future volatility of IPO and became evident with subsequent information available in the market, which is expressed through after market volatility. In short, this section completed the empirical evidence on short run analysis and long run analysis finds that, Indian IPOs are under-priced more in short run time frame. This section provides brief empirical evidence on existing literature on the ex-ante uncertainty and changing risk composition hypothesis, divergence opinion hypothesis and Window of Opportunity hypothesis. However tests have not revealed the factors that are responsible for under-pricing. When considering the ex-ante uncertainty there should some factors that are responsible causing this ex-ante uncertainty among the investors. Extant literature indicates there are several firms specific characters that are responsible for ex-ante uncertainty and theses factors should be analyzed. So the following section to analyze the post issue firm specific characteristics that are responsible for under-pricing.

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4.5. Factors affecting IPO initial price performance:When analyzing the IPO price performance, researchers also analyzed various factors that affect the IPO price performance over the period of time. Previous research on factors affecting the IPO price performance are proposed by Hensler, Rutherford and Springer (1997); Jaskiewicz et al (2005), Bhabra and Pettway (2003); and Jain and Kini (1994). These researchers examined the firm level characteristics before public offering and determined there exists a positive relationship between these characteristics and IPO price performance. These firm level characteristics include but not limited age of the company, size of the issue, post issue promoter holding and finally list lead time commonly termed as lag time. This list lead time is difference between offering close date and first day of the trading of the stock. The following table provides international evidence factors affecting the IPO price performance over the period of time. Table 19:- International Evidence on factors for IPO pricing
Factor Age Evidence Ritter (1984), Megginson and Weiss (1991); Vetsuypens (1990); Bharbara et al (2003). Explanation Younger companies are more under-priced than companies with long history. Less offer size IPOs are more speculative in nature.

Offer Size

Beatty and Ritter (1986) and Tinic (1988), Fernando, Krishnamurthy, and Spindt (2003). Brav and Gombers (1997) and Brav et al (2000).

Post issue Aggarwal & Rivoli (1990), Aggarwal, et al promoter (2008) holding List time

Companies under-priced.

with

higher

ownership retention are more

lead Eckbo & Norli (2005) and ,Hoechle & Schmid IPOs with more list lead time (2007) are more under-priced than others.

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The mentioned table is international evidence that supports the argument that has relationship between IPO returns, with related to the ex-ante uncertainty. So, the following section of the chapter tends to find out the factors that are responsible for India IPO under-pricing. Previous research also includes that one of these factors may have direct relationship between IPO price performance and ex-ante uncertainty. Aggarwal and Rivoli (1990) have concluded that there exists positive relationship between list lead times, age of the company to ex-ante uncertainty. There following section of the chapter is designed to find out the relationship between above mentioned factors and Indian IPO price performance. Descriptive statistics were used to find the mean value of the factors. 4.5.1 Age of the company and Initial returns:This section of the chapter uses ages of companies and their relationship between underpricing (initial returns). Existing literature in the field of finance argues that there exists a positive relationship between the age of the company and IPO initial performance. Researchers argue that there exists more under-pricing for the IPOs of younger firms. Ritter (1984), Megginson and Weiss (1991), Muscarlla and Vetsuypens (1990) and Ritter (1991) all determined years of companies in business has a significant effect on IPO price performance. Younger companies IPO are tend to be more under-priced than older companies. The years 1999, 2000 and 2001 saw younger firms going to the public, which increased total proportion of companies going to public offering due to Internet bubble. Ritter (2004) examined this scenario and concluded that, relationship between age of company and initial returns are not stationary, but also depend on other offering characteristics. However, Lowry and Schwert (2004) used a dummy variable with public offering issuing firms age and examine the relationship between age and other offering
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characteristics. They concluded that a carve-out company will be more under-priced than the others. Following the existing literature, this section of the chapter uses age of companies and tries to find a relationship between the age of companies and their IPO initial returns. To determine the age of issuing firm (AGE), this study uses time interval between IPO offer date and the date firms was founded. The relevant information about the date actually company founded is collected from the IPO prospectus. If the foundation date is not available in the date of incorporation is used, moreover these dates are doubled checked in respective companies websites. The following table provides the age of companies. Table 20: - Age of Indian companies listed in London Stock Exchange
Year 1999 2000 2001 2002 2004 2005 200 6 MEN MED S.D MIN MAX CONT 43 43 ----43 43 1 55 55 4.2 52 58 2 36 36 ---36 36 1 9.62 8 5.8 3.6 21 9 4 4 --4 4 1 25.5 14.5 23.6 12 61 4 12.1 13 2.8 6 15 9 200 7 17.8 18 4.4 12 23 5 200 8 6 6 ---6 6 1 200 9 11 10.5 3.1 8 15 4 201 0 8.65 9.45 2.7 5 11 6

In the table MEN refers to mean; MED refers to Median; S.D refers to Standard Deviation; MIN refers to Minimum; MAX refers to Maximum; CONT refers to count. From the table it is clear that the average mean of companies has declined considerably over the period of time. It is clear that small and medium aged companies are coming in to market, more rigorously for the considerable period. In particular the year 2004, Vedanta resources have entered the market just after four years from the date actually it has been founded. And in the year 2000 Bajaj Auto has entered in to market, which is having long corporate history.

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Graph: - Average age of Indian companies listed in London Stock Exchange.

Table 21:-Initial Returns of Indian IPOs by AGE:Year Sam Age IIR MAI R 1999 1 43 3.8 3.65 2000 2 55 7.9 8 2001 1 36 8.58 7.9 2002 9 9.62 14.4 13.2 2004 1 4 9.1 8.5 2005 4 25.5 12.6 12.2 2006 9 12.1 14.4 13.4 2007 5 17.8 7.82 7.2 2008 1 6 15.2 13.9 2009 4 11 11.4 10.4 2010 6 8.65 12.6 12.08

In the above table Sam refers to Sample; IIR refers to Initial investor return and MAIR refers to Market Adjusted investor return. As in the existing literature, there exists a relationship between age of the company and its IPO under-pricing. This table represents the age effects on the under-pricing, as we can see from the table under-pricing is significantly low for companies with older corporate history. Aged firms have considerable track record of financial and operational history, which supports higher fund requirements. Here it is clear that the there exists a positive relationship between age of the company and under-pricing. The younger companies are more under-priced than the others. This is particularly consistent with the existing research work by the Ritter (1984), Megginson and Weiss (1991), Muscarlla and Vetsuypens (1990) and Ritter (1991). But in the year 2005 one Indian company with longest corporate history is more underpriced than its counter parts. The reason for this is that, State Bank of India an government owned bank, although it is having long history, it has undergone major restructuring and mergers and acquisitions with other small Indian banks. Investors may
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under-price the State Bank of India due to the reason that it is a government owned bank from a developing country. So far this section has analyzed the relationship between age of the company and underpricing. Next section will concentrate on the public offering issue size and underpricing. 4.5.2. Offering Size or amounts of funds raised (SIZE) and under-pricing:This section of the chapter empirically investigates the public offering size i.e. issue size and the under-pricing. An issuing with long corporate back ground generally raises more capital in the market than the younger ones. So, there is a relationship between issue size and the under-pricing. According to UKLA (United Kingdom Listing Authority) issues size should be disclosed in the offering prospectus. The larger the issue the smaller the money left on the table. The issue size also, consistently researched in the field of finance and commonly used as one of the ex-ante uncertainty for under-pricing. As it is argued by the Beatty and Ritter (1986) and Tinic (1988), smaller IPOs are more speculative in nature than the bigger IPOs. Fernando, Krishnamurthy, and Spindt (2003) inversely to the above research concluded that there exists a negative relationship offer size and the initial day returns. Moreover, underwriter use under pricing as tool for reducing the marketing effort, which is beneficial for the larger companies with large issues Baron (1982). So, this chapter defines Wang (2009) model for amounts of funds raised as, which is net offering excluding the expenses paid during the issues and overallotment of shares to the underwriters. To be consistent with Winners Curse Model Rock (1986), this section tries to find out whether larger firms are less under-priced than the others.

The total amount of money Indian companies raised for the sample period is 11,486 million GBP. Vedanta Resources is the company that raised highest 1.30 billion GBP in the year 2004-05, the lowest capital is 50 million GBP raised by Indian Hospitality Corp. The following table presents the total capital raised by Indian companies year-by10024495 Page 71

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year wise. In the following table initial investor returns and market adjusted investor returns are also presented column third and column fourth. Table 22:-Initial returns of Indian IPOs by Issue size (SIZE):Year Sample IIR 1999 1 3.8 2000 2 7.9 2001 1 14.4 2002 9 8.58 2004 1 9.1 2005 4 12.6 2006 9 14.3 2007 5 7.82 2008 1 15.2 2009 4 11.4 2010 6 12.6 5 MAIR 3.65 8.06 13.2 7.97 8.85 12.2 13.4 7.24 13.9 10.4 12.0 8 Capital raised 200 240 85 2362 2000 1021 2366 1005 140 1213 854

In the table IIR refers to Initial Investor return and MAIR refers to Market adjusted initial return. Above table provided a link between under-pricing and amount of capital raised by the companys year-by-year. But, there does not exist any clear pattern to describe the situation regarding capital raised and under-pricing. So, the following table provides correlation between the issue size and under-pricing. According to the guidelines provided by the UKLA (United Kingdom Listing Authority), capital raised less than or equal to 100 million pounds are small IPOs, amount greater than 100 million pounds and less than 500 million pounds are considered as medium sized IPOs and finally amounts greater than 500 million pounds are considered as big IPOs. Big IPO are generally raised through main market.

Table 23:-Initial Investor and Market Adjusted Investor returns according to the offer Size:10024495 Page 72

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SAMPLE Sample IIR MAIR Average offer Size SIZE<100 SIZE>100 AND <500 SIZE>500 Total 11 26 6 43 14.9 11.24 5.95 13.96 11.01 5.46 69.18 249.42 790

Above provides the correlation between the offer size and initial investor return and market adjusted investor return. The average offer price of Indian IPOs lie between the 69.18 and 790 million GBP. From the table it is clear that under-pricing decreases with the offer size. This is consistent with the work done by the researchers Beatty and Ritter (1986), as the offer size decreases there will be more under-pricing. This table provides direct answer and accepts the Tinic (1988) frame work as of smaller IPOs are more generally speculative in nature than the older IPOs. To this statement evidence is provided in the column third and fourth of the table. 4.5.3 List Lead time and Initial price performance:Listing lead time generally considered as the time lag between public offering closing date and the first day trading date. This is called list lead time and generally it lies between five to twenty days for an IPO in UK equity market. So this section of the chapter tries find out effect of IPO list lead time and the under-pricing. Different IPOs take different time spans for listing in the UK IPO market. So, as to scrutinize the effect of listing lead time on initial under-pricing cross sectional analysis was done. List lead time has been categorized in to three time periods. They are presented in the following table.

Table 24:- Initial listing returns of Indian IPOs in London Stock Exchange by list lead time
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Sample Size List Lead Time IIR MAIR Average Capital Raised Million GBP 11,486 3,418 2,081 4,987

N All-43 7 23 13

No. Of. Days 11 5 days 5-10 Days Above 10 days

% 11.04 5.6 14.24 8.9

% 10.79 5.01 13.91 8.23

In the above table first column represents the sample for the period 1999-2010. The second column represents the mean value of listing days for the sample period. Third and fourth columns represent Initial investor return and market adjusted invested return. Finally fifth column represents average capital raised by companies according to the sample of firms. From the table it has to be clear that the under-pricing has to be decreased as the list lead time increases which has to be consistent with the Aggarwal & Rivoli (1990), Aggarwal, et al (2008). The lower under-pricing is seen in the mean list lead time of five days. From the existing literature it is clear that under-pricing is lower for the firms with lower list lead time. But from the table the under-pricing is higher with the firms with median list lead time that is 5-10 days. These results are not consistent with the research proposed by the Aggarwal & Rivoli (1990), Aggarwal, et al (2008) The firms with higher list lead time which is above ten days experienced lower under-pricing than the firms with five to ten days. The possible explanation is that there are firms with in third sample with median offer size some companies have longer corporate history. Investors justified the assumption that companies with longer corporate history are have good track record and justified a good price for that particular firms. The companies that exist in the third sample with average listing time above ten days are Bajaj Auto, GAIL India and Seri infrastructure private limited. Another interesting explanation that sample consists of Vedanta resources and Tata motors which has IPO offer size more than 500 million GBP.
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Investors in UK market have strong belief in the companys history than list lead time. Investors in the UK market gave minor importance to the list lead time and gave major importance fundamental factor such as corporate history and offer sizes. 4.5.4.Post Issue promoter holding :-( PIPH) Aggarwal & Rivoli (1990), Aggarwal, et al (2008) concluded that the percentage of company or stock owned by the promoter and the promoters group, i.e. promoter, CEO and employees of the company and venture capitalist firms in the post IPO scenario exhibits a positive relationship between IPO and their initial day trading performance. So, this section of the chapter tries to find out whether this factor has direct relationship with under-pricing of Indian IPOs. This chapter tends find out whether UK investors tires to under-price IPO with more PIPH. For considering the post promoter holding percentage this section uses the Aggarwal & Rivoli (1990) study for firms with higher than 75% PIPH and 50-75% PIPH and firms with lower than 50% PIPH in post IPO scenario. Table 25: - Initial Returns of Indian IPOs by Post Issue Promoter Holding
Sample No 16 12 15 PIPH % Less than 50% More than 50% but less than 75% Above 75% IIR % 5.58 8.2 14.4 MAIR % 5.1 7.65 14.29

In the above table initial investor returns and market adjusted investor returns are presented according to post issue promoter holding of Indian companies. It is clear that firms with post issue promoter holding above 75% are more under-priced than the others. The two samples with less promoter holding are less under-priced and it is consistent with the extant literature. Companies with higher promoter holding will be more under-priced than the others. Aggarwal & Rivoli (1990), Aggarwal, et al (2008) proposed that this phenomenon under-pricing is due to the ex-ante uncertainty about the

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company. With highest promoter holding investors tend to have somewhat ex-ante uncertainty of the firms and they tend to be under-priced. 4.6.Summary:In summary, this chapter empirically calculated initial investor return and market adjusted investor return for initial trading, short run and long run. Descriptive statistics were primarily used to analyze the empirical data in this chapter. The returns of investors or under-pricing are higher in short run than long run analysis. In long run analysis the under-pricing is negative which indicates that the investors provided intrinsic values to their assets. This is consistent with the extant literature that international companies are tending to be under-priced because of ex-ante uncertainty about their financial situation. After brief period time as the information flow from top to bottom about the companys performance and other aspects relating to the companies, this under-pricing comes to normal situation. Moreover, there has to be some reasons that cause ex-ante uncertainty about the companies that raise capital. So this chapter also discusses and analyzed various firms characteristics such as age, offer size, list lead time and post issue promoter holding. The descriptive statistics used revealed that only companies with lower age, smaller size of the IPO offer and post issue promoter holding are prime factors for under-pricing of Indian IPOs in the UK market. The list lead time has no positive relation with the under-pricing. Finally this chapter has finished empirical calculations and made some conclusions for this dissertation, which is presented in the next chapter.

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Chapter V
SUMMARY AND CONCLUSION

Chapter 5:5.1 Summary and conclusion:From the analysis done in the previous chapter that it can be concluded there exists a clear under-pricing of Indian firms in UK equity market (London Stock Exchange). But
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this under-pricing is normal and lower when compared to other International offerings and it is much lower when compared to India. Although India is far away from London, its investor structure, accounting standards, offering methods except the market premium are equal to the London and International standards. Indian firms are generally different from the local counterparts and other international offerings in-terms of ownership backgrounds, inherent corporate characteristics and inconceivable market demand. If an overseas listing is combines with various information barriers and other risks, it is worthwhile to analyze and investigate what makes London as optimal trading platform or international arena for Indian companies to go for public offering. Various asymmetric information models systematically investigate the extent of underpricing of IPOs by assuming that investor groups such as institutional, retail investors and market participants such as issuing firms and under-witters possess costly information. This information with held by the investor groups and market participants is necessary in pricing of new IPOs. Therefore, for transfer of information involves compensation and this compensation involves in Initial Public Offerings under-pricing. This study stress the importance of conjunction and effects of various information asymmetry theories and models and investigate empirically the extent of under-pricing of Indian IPOs in UK (London stock exchange) equity market. This investigation is primarily carried a direct test on Rocks (1986) Winners Curse Model; B-N model or partial adjustment hypothesis Hanley (1993); Benveniste and Spindt, (1989) and finally, principle agent model Welsh (1982). By testing 43 Indian IPOs in UK equity market from April 1999 to April 2011, this study finds the extent of under-pricing of Indian IPOs is comparatively lower than other international offerings. The average initial returns are comparatively lower than the mean returns of other international offerings. The descriptive statistics were used analyze the extent of under-pricing in initial returns and market adjusted returns. This study finds that there exists an ex-ante uncertainty and under-pricing of new IPOs in equity market. But this study also finds that the ex-ante uncertainty respective to underpricing is much lower when relating to Indian IPOs.

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The empirical investigation further moves on market adjusted returns and found that marker adjusted returns are very smaller than the initial investor returns, this also concludes that Indian IPO are not extensively under-priced when compared to London equity market returns. This dissertation furthermore tested the extent of under-pricing in short term and long terms under-pricing. The empirical evidence concludes that short term under-pricing is positive while the long term under-pricing is negative. This scenario can be explained with the help of the risk composition hypothesis proposed by the (Loughran and Ritter, 2004). This dissertation furthermore analyzed the pre-offering firm characteristics or factors that are responsible for Indian IPOs under-pricing and conclude that age of the company, Offering size, Leverage ratio and Post Issue promoter holding are positively related. This is consistent with existing literature about IPO under-pricing, but when comparing the list lead time; these results are not consistent with the existing literature. This list lead time is carefully analyzed when actual date of formation is not available; the date of incorporation is taken. In an boarder scenario this empirical dissertation can be referred to as can be assessing for the potential return of Indian IPOs as per market signals and issue specific condition. Although Indian IPOs return are positive in the in initial and short term return, the long returns are negative suggests that the IPO are very well priced during the offering process. If the IPO are not priced according to true value of the company the returns of the IPOs should be positive in long terms process also. Finally this dissertation with the help of empirical results concludes that UK equity market is optional platform for Indian companies to raise capital and to have better valuation. 5.2 Scope for Further Research:The topic about Indian companies going overseas for public issues is narrowly discussed in the field of finance and international business. According to my opinion based on desk research, there is no research paper regarding this issue. With continuous economic development, more and more Indian companies are in line for raising capital in London stock exchange. Although this dissertation successfully tested extent of
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under-pricing of Indian IPOs in the UK market with the help of existing asymmetric models, there are some and limitation and for this study. This limitation provides some basic stand for future research. Also these limitations cannot be neglected. As mentioned in the above chapters, the conjunction of various theories on underpricing implies the bottle neck of the IPO literature. Also, empirical findings in the London equity market are sensitive to the sample and may not applicable to other equity markets. Moreover there is significance relationship between price revision and underpricing. (Hanley, 1993) Cornelli and Goldreich, (2001); Ljungqvist and Wihelm,(2002) price revision formulas can be used to deduce the relationship between price revision and share allocation. But the underlying problem in deterring the price revision is that, there is deep relationship between price revision and share allocation during the offering process. So any research has to know amount shares offered among institutional investors and retail investors. But book building methods in UK are regarded as secrecy to protect the client information, and investment bankers are not willing to open the doors to collect the data of share allocation. Sp, this is one of the draw backs of this research.

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Pagano, M., Rell, A.A. and Zechner, J. (2002), The Geography of Equity Listing: Why Do Companies List Abroad? The Journal of Finance, Vol.57:No.6, PP.No.2651-94. Pagano, M., Randl, O., Rell, A.A. and Zechner, J. (2000), What Makes Stock Exchanges Succeed? Evidence from Cross-Listing Decisions, Working Paper No.50, Centre for Studies in Economics and Finance, University of Salerno; Portes, R. and H. Rey, (2002). The Determinants of Cross-Border Equity Flows, unpublished manuscript, Princeton University press. Ritter, Jay R., (1984), The Hot Issue Market of 1980, Journal of Business vol.57, pp.no.215-240.

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Ritter, Jay R., (1987), The Costs of Going Public, Journal of Financial Economics, Vol. 19(2), pp. no.269-281. Ritter (1991). The Long-Run Performance of Initial Public Offerings, Journal of Finance, Vol.46(1), PP.NO.3-27 Rock, K., (1986), Why New Issues Are Underpriced?, Journal of Financial Economics, Vol. 15, pp. 187-212.
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Shah, A. (1995), The Indian IPO market: Empirical Facts Accessed from SSRN Library. Sherman, A. E., and S. Titman, 2002, Building the IPO Order Book: Underpricing and Participation Limits with Costly Information, Journal of Financial Economics 65, 3-29. Spatt, Chester and Sanjay Srivastava, (1991), Preplay Communication, Participation Restrictions, and Efficiency in Initial Public Offerings, Review of Financial Studies Vol. 4, pp.no.709-726. Stapleton R. and M. Subrahmanyam, (1977), Market Imperfections, Capital Market Equilibrium and Corporation Finance, Journal of Finance 32, 307-319.
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Welch, I and Ritter, J.R., A Review of IPO Activity, Pricing and Allocations (February 2002). Yale ICF Working Paper No. 02-01.
Welch, I. (1992) Sequential sales, learning and cascades, Journal of Finance, Vol.47, No. 2, pp 695-732.

Zingales, L., 1995, Insider Ownership and the Decision to Go Public, Review of Economic Studies vol.62, pp.no.425-448. What happened to Asia conference presentation in Japan (1998). Source:http://web.mit.edu/krugman/www/
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Table 1: Indian Companies listed in London Stock Exchange UK equity market (MAIN Market/ AIM Market/ PSM)

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1. Acc limited 2. AMTEK Auto 3. Ashok Leyland 4. Axis Bank---2006 5. Bajaj Auto--2010 6. CESC--2002 7. Crompton Greaves--2006 8. DQ Entertainment--2007 9. EIH---2007 10. Electro Steel Castings---2002 11. Elephant Capital PLC--2007
12. Eredene Capital--2006

21. HIRCO---2007 22. Indian Energy2009 23. Indian Hotel CO--2001 24. India Hospitality CORP2005 25. Indian Restaurants Group --2005
26. INFRASTRUCTURE INDIA PLC--2005

27. LLYOLD Electric and CO--2005

28. Naya Bharath CO PLC--2006

29. Noida Toll Bridge---2006 30. OPG Power Venture--2008 31. REI Agro 32. Reliance Energy
33. Rolta India

13. Essar Energy---2010 14. Federal Bank--2006 15. GAIL India--2010 16. Great Eastern Energy Corp--2006
17. Grenko Group

34. SKIL---2010 35. Seri Infrastructure finance--2010 36. SSI--2001 37. State bank of India--2006 38. SAIL--2010 39. Unitech Corporate PLC--2007 40. Vedanta Resources--2004

18. KSK Power Venture--2006 19. Hexaware Technologies LTD.--2005 20. Himachal Futuristic Communications--1999

Table 1: Indian firms listed in overseas capital markets UK Source: London Stock Exchange

Table 3:-Annual Fees Comparison for biggest stock exchanges in the world (USA and UK).

M.C refers to Market Capitalizations and the values are shown in Great Britain Pounds.
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Source: Oxera, LSE, NYSE and NASDAQ.

Stock Exchange

M.C of 100 million GBP 4,029 4,810 19,110 1,1466 1,16,653

Market Cap above of Market Cap of 10 500 million GBP Billion GBP 8,235 4,810 19,110 11,466 29,977 34,515 47,000 2,73,000 N/A 4,09,500

LSE Main LSE AIM NYSE NASDAQ Small NASDAQ National

Table 4:-Listing Fees Comparison for biggest stock exchanges in the world (USA and UK). M.C refers to Market Capitalizations and the values are shown in Great Britain Pounds.
All values are gross spread taken from a sample. UK-Main refers to Main market in the London Stock Exchange and AIM refers to market for International Markets. NYSE refers to New York Stock Exchange and NASDAQ refers to National Association of Securities Dealers Automated Quotations.

Stock Exchanges LSE MAIN LSE AIM NYSE NASDAQ National NASDAQ Small Cap

M.C of 100 GBP 45,390 4180 81,900 54,600 51,870

M.C of 500 Millions 115,023 4,180 104,870 81,900 27,300

Source: Oxera, LSE, NYSE and NASDAQ.

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Table 5:- Under-writer Fees Comparison for biggest stock exchanges in the world (USA and UK).
All values are gross spread taken from a sample. UK-Main refers to Main market in the London Stock Exchange and AIM refers to market for International Markets. NYSE refers to New York Stock Exchange and NASDAQ refers to National Association of Securities Dealers Automated Quotations.

Domestic Companies UK-MAIN UK-AIM NYSE NASDAQ Source:Oxera

Table 6:- Summary of Initial Returns Mean Standard Error Median Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Count 11.40339 0.902446 12.025 2.853784 8.144084 -1.80466 -0.08126 7.38 7.82 15.2 43

International Companies 3.5 4.9 7 7

3 3.5 7 7

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Table 7:- Descriptive Statistics of initial return for Indian IPOs for the year 1999-2011. Intentionally the year 2003 and 2011 has been deleted as there are no IPOs for that particular year. Min refers Minimum and Maxi refers to Maximum. Year Sample Mean % 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 1 1 1 9 1 4 9 5 1 4 6 3.8 7.9 14.4 8.58 9.1 12.675 14.3 7.82 15.2 11.4 12.65 Median % 3.8 7.9 14.4 9 9.1 9.55 14.4 6 15.2 12.5 14.4 Min % 3.8 4.6 14.4 1.2 9.1 6.4 4 1.2 15.2 4 1.2 Maxi % 3.8 11.2 14.4 16.6 9.1 25.2 32.2 14.4 15.2 116.6 16.4 Largest % 3.8 11.2 14.4 16.6 9.1 25.2 32.2 14.4 15.2 16.6 16.4 Smallest % 3.8 4.6 14.4 1.2 9.1 6.4 4 1.2 15.2 4 1.2

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Table 8: Descriptive Statistics for Market Adjusted Initial Return for Indian companies in London Stock Exchange from the period 1999-2011. The years 2003 and 2011 were intentionally deleted as there were no Indian IPOs for those years. Min and Max refers to Minimum and Maximum.
Year Sample/ No. IPO's 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 1 1 1 9 1 4 9 5 1 4 6 3.65 8.065 13.2 7.97 8.85 12.2 13.4 7.242 13.9 10.4 12.08 3.65 8.065 13.2 8.2 8.85 9.25 13.2 5.5 13.9 11.25 13.6 3.65 4.77 13.2 1.15 8.85 6.12 3.6 1.1 13.9 3.6 1.19 3.65 11.36 13.2 15.9 8.85 24.2 31.6 14.1 13.9 15.5 15.9 1 2 1 9 1 4 9 5 1 4 6 3.65 11.36 13.2 15.9 8.85 24.2 31.6 14.1 13.9 15.5 15.9 3.65 4.77 13.2 1.15 8.85 6.12 3.6 1.1 13.9 3.6 1.19 Of Mean Median Mini Maxi Count Largest(1) Smallest(1)

Table 9:- Comparative Analysis of Indian and Non-Indian IPOs.

Descriptive Variables Mean Standard Error Median Standard Deviation Sample Variance Minimum Maximum Count 10024495 Indian IPOs 11.40339 0.902446 12.025 2.853784 8.144084 3.82 15.2 43 Non-Indian IPOs 18.241529 1.31658 16.24521 4.3265898 11.245896 2.4521 18.241529 757 Page 92

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Table:- 11 This table represent the initial returns and short run analysis returns. For short run analysis a time frame of One week; One month and six Months periods is chosen. The values provided in the table are mean returns of the sample.
Years 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 Total Sample 1 2 1 9 1 4 9 5 1 4 6 43 Initial return 3.8 7.9 14.4 8.58 9.1 12.675 14.3 7.82 15.2 11.4 12.65 -----One Week 4.0 7.73 12.4 7.87778 7.2 11.141 13.60767 8.336 10.36 12.315 18.808333 ------One Month 5.2 6.36 13.69 13.46 3.6 8.74 15.39 9.322 17.26 15.8 24.08 -----Six Months 11.24 17.39 21.2 20.59 15.2 21.6 19.4 15.85 22.36 23 26 --------

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Table 12:- This table represents descriptive statistics for one week short run analysis of

Indian companies. The sample is taken from a period from 1999-2010. The years 2003 and 2011, there are no Indian firms listed in LSE; Med refers to medium; S.D refers to Standard Deviation; S.V. refers to Standard Variance; KU refers to Kurtosis; Skew refers to Skewness; Min and Max refers to Minimum and Maximum. Descriptive Statistics for One week Short run analysis of Indian companies.
1999 2000 2001 2002 200 4 Mean 3.5 7.73 12.4 7.87 7 Med S.D 3.5 ---7.73 4.638 12.4 ---6 6.34 6 S.V ---21.51 ---40.2 8 Ku ---------1.63 7 Skew ---------0.37 2 Range Mini Max Count 0 3.5 3.5 1 6.56 4.45 11.01 2 0 12.4 12.4 1 16.7 0.5 17.2 9 0 7.2 7.2 1 17.6 5.6 23.2 4 29.271 3.689 32.96 9 13.42 1.14 14.56 5 0 10.3 10.3 1 17.56 2.8 20.36 4 33.8 5.4 39.2 6 ---1.7727 1.1136 0.349 ---0.5631 1.1736 ---3.2411 1.4299 0.718 ---0.9432 2.3107 ---64.219 85.078 27.35 ---53.514 130.15 7.2 ---8.428 8.0137 13.2 9.2237 8.9 5.229 10.3 ---13.05 7.3153 17.25 11.408 7.2 11.414 13.607 8.336 10.3 12.315 18.803 2005 2006 2007 2008 2009 2010

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Table 13:- This table represents descriptive statistics for one month short run analysis

of Indian companies. The sample is taken from a period from 1999-2010. The years 2003 and 2011, there are no Indian firms listed in LSE; Med refers to medium; S.D refers to Standard Deviation; S.V. refers to Standard Variance; KU refers to Kurtosis; Skew refers to Skewness; Min and Max refers to Minimum and Maximum.
Variable s Mean 5.2 6.36 13.6 13.46 3.6 8.743 15.39 9.322 17.2 15.83 7 Medi 5.2 6.36 13.6 8.9 3.6 5.787 12.26 6.32 17.2 18.31 24.02 7 27.18 6 S.D --0.056 ---15.46 ---7.019 11.16 8.981 ---7.554 14.40 3 S.V --0.003 ---239.3 ---49.27 124.6 80.66 ---57.06 207.4 7 Ku -------6.038 ---3.732 3.310 1.054 ---0.743 0.066 3 Skew --------2.341 ---1.916 1.765 1.272 ---1.256 0.656 7 Range Mini Maxi Sum 0 5.2 5.2 5.2 0.08 6.32 6.4 12.72 0 13.69 13.69 13.69 50.07 2.03 52.1 121.1 0 3.6 3.6 3.6 15 4.2 19.2 34.97 34.74 6.36 41.1 138.5 21.53 2.1 23.63 46.61 0 17.26 17.26 17.26 16.00 5.36 21.36 63.34 40.19 1.09 41.28 144.1 6 Count 1 2 13.69 9 1 4 9 5 1 4 6 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010

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Table 14:- This table represents descriptive statistics for Six months short run analysis of Indian companies. The sample is taken from a period from 1999-2010. The years 2003 and 2011, there are no Indian firms listed in LSE; Med refers to medium; S.D refers to Standard Deviation; S.V. refers to Standard Variance; KU refers to Kurtosis; Skew refers to Skewness; Min and Max refers to Minimum and Maximum.
Variabl 199 9 Mean Med S.D S.V Ku Skew Range Mini Maxi Sum Count 11.2 11.2 ------------0 11.2 11.2 11.2 1 5.9 5.9 0.989 0.98 ------1.4 5.2 6.6 11.8 2 11.2 11.2 -----------0 11.2 11.2 11.2 1 20.95 10.36 32.80 1075 8.499 2.887 103.6 3.89 107.5 188.5 9 15.2 15.2 ------------0 15.2 15.2 15.2 1 21.6 20.1 7.98 63.7 1.94 1.06 19 13.6 32.6 86.6 4 19.40 14.36 14.9 222.1 2.31 1.75 42.92 9.24 52.16 174.6 9 15.85 15.36 6.343 40.23 2.63 1.44 16.67 9.69 26.36 79.27 5 22.3 22.3 ------------0 22.3 22.3 22.3 1 23.01 20.29 10.03 100.6 0.982 0.913 21.02 15.21 36.24 92.04 4 26.648 18.3 25.612 656.00 1.640 0.682 60.85 2.36 63.21 159.89 6 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010

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Table:15 - This table represents the descriptive statistics for Long run analysis. As it can be noticed from the last column of the table, count has been gradually decreased. The reason is that the years 2009 and 2010 cannot be used for the two years and three years analysis simultaneously. Descriptive statistics for Long run analysis. One year Mean 21.6988 6 Standard Error 3.67182 4 Median Mode Standard Deviation 12.325 17.6 24.3561 2 Kurtosis Skewness 3.49093 2.02898 7 Range Minimum Maximum Sum
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Two years -1.92308

Three years -1.52076

4.291763

3.534232

-0.36 -21.2 26.80205

-3.29 -5.21 20.30262

1.910484 -0.82614

7.660216 1.366256

98.79 0 98.79 954.75

130.53 -74.21 56.32 -75

125.45 -47.21 78.24 -50.185

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Count 44 39 33

Table 16:- Descriptive Statistics for Long run analysis for year one. In the table mean refers to Mean; med refers to median; S.D. refers to Standard Deviation; Kur refers to Kurtis; Ske refers to Skewness; Min and Max refers to Minimum and Maximum; Sum and Cou refers to Sum and Count. The sample is taken
from a period from 1999-2010. The years 2003 and 2011, there are no Indian firms listed in LSE 1999 Mea Med S.D Kur Ske Ran 17.6 17.6 0 2000 8.14 8.14 4.60 6.51 2001 17.6 17.6 0 2002 10.1 11.6 3 3.97 1.28 0.53 10.8 200 4 4.56 4.56 --0 200 5 13.3 10.1 11.1 0.55 1.20 24.1 2006 39.5 21.02 37.14 0.812 1.05 87.23 2007 8.344 5.6 9.37 1.08 1.23 23.12 2008 76.32 76.32 --------0 2009 12.4 11.9 1.5 1.7 1.4 3.32 2010 38.3 8 38.8 3 20.9 1.6 0.03 53.9 7 Page 98

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Min Max Sum Cou 17.6 17.6 17.6 1 4.89 11.4 16.2 2 17.6 17.6 17.6 1 4.6 15.4 91.6 9 4.56 4.56 4.56 1 4.5 28.6 53.3 4 11.56 98.79 355.7 9 0.12 23.24 41.72 5 76.32 76.32 76.32 1 11.24 14.56 49.61 4 11.2 4 65.2 1 230. 2 6

Table 17:- Descriptive Statistics for Long run analysis for two years. In the table mean refers to Mean; med refers to median; S.D. refers to Standard Deviation; Kur refers to Kurtis; Ske refers to Skewness; Min and Max refers to Minimum and Maximum; Sum and Cou refers to Sum and Count. The sample is taken from a period from 1999-2010. The
years 2003 and 2011, there are no Indian firms listed in LSE 1999 Mean S.D Median S.D Kur Ske Ran -21. 0 -21 -----------0 2000 -21 0 -21 -------0 2001 21.2 0 21.2 ----------0 2002 2.8 5.04 3.62 15.12 -1.424 -0.31 42.56 2004 19.2 0 19.2 --------0 20005 -11.2 15.50 -0.105 31.0 2.64 -1.643 67.8 2006 -0.494 11.06 -1.9 33.1 2.95 -0.974 123.3 9 2007 0.238 3.70 -0.36 8.28 0.717 -0.05 22.62 2008 -25.4 15.06 -5.85 33.6 -1.30 -0.92 76.57 2009 -25.4 15.0 -5.85 33.69 -1.304 -0.923 76.57 Page 99

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Min Max Sum Count -21.0 -21.0 -21.0 1 -21.2 -21.2 -21.2 1 21.2 21.2 21.2 1 -21.2 21.36 25.96 9 19.2 19.2 19.2 1 -56.2 11.6 -44.81 4 -72.36 51.03 -4.45 9 -11.2 11.42 1.19 5 -74.21 2.36 -127.2 5 -74.21 2.36 -127.2 5

Table 18:- Descriptive Statistics for Long run analysis for three years. In the table mean refers to Mean; med refers to median; S.D. refers to Standard Deviation; Kur refers to Kurtis; Ske refers to Skewness; Min and Max refers to Minimum and Maximum; Sum and Cou refers to Sum and Count. The sample is taken from a period from 1999-2010. The
years 2003 and 2011, there are no Indian firms listed in LSE Mean Median S.D Kurto Skew Range Mini Maxi Sum Count -9.2 -9.2 ------------0 -9.2 -9.2 -9.2 1 2.23 2.23 6.1235 -------8.66 -2.1 6.56 4.46 2 -5.89 -5.89 -----------0 -5.89 -5.89 -5.89 1 -1.588 -1.9 11.555 1.971 0.4072 42.56 -21.2 21.36 -14.3 9 -3.6 -3.6 ------0 -3.6 -3.6 -3.6 1 9.3875 10.13 3.6758 0.7426 -1.009 8.49 4.4 12.89 37.55 4 -8.855 -6.32 17.63 2.7283 0.5882 66.89 -45.21 21.68 -79.7 9 4.099 -5.21 45.623 2.7220 1.1876 125.45 -47.21 78.24 20.495 5 -9.31 -9.31 --------------0 -9.31 -9.31 -9.31 1

Raise of Capital in International Financial Markets. An Empirical analysis on extent of Under-pricing of Indian IPOs in UK equity market (London Stock Exchange). 1. Scope and Rationale of Project: International Business has two parts: International trade and International Capital. International capital (or international finance) studies the flow of capital across international financial markets; International capital plays a crucial role in an open economy. In this era of liberalisation and globalisation, the flows of international capital (including intellectual capital) are enormous and diverse across countries. Finance
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gained more mobility as factors of production especially through the multinational corporations (MNCs). Foreign investments are increasingly significant even for the emerging economies like India. This is in-keeping with the trend of international economic integration. A Peter Drucker rightly says, "Increasingly world investment rather than world trade will be driving the international economy". Therefore, a study of international capital movements is much rewarding both theoretically and practically. Firms primarily rise their money, by corporate bonds, bank based debts and in equity markets. My research will primarily focus on the equity capital raising in UK markets which is followed by analysis of methodology in under-pricing during in raising the liquidity for above mentioned market. And in the conclusion, it will specify which whether London is an good platform for raising capital for Indian companies. Consequently, the purpose of this project is to explore the drivers and some outcomes of mode raising capital in International financial markets. To achieve this, the study will be guided by the following research objective and questions: Research Objective:To explore the level of Under-pricing and Indian IPOs in the UK equity market (London Stock Exchange

Research Questions:1. An overseas listed companies tend have more under-pricing due to uncertainty and higher information asymmetry. If so, does the Indian IPOs are under-priced more than others in UK equity market.. 2. To study the extent of under-pricing in Short run and Long run of Indian IPOs in UK. 3. What are the factors affecting the Indian IPO price performance.

Methodology:This research approaches both qualitative and quantitative methodology. Firstly this study provides the overview of equity financial markets of India and reasons for moving overseas financial markets. Secondly, the study provides the overview of equity financial markets in UK with and procedure raising capital and listing in respective
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stock exchange, then it provides an qualitative.The final part of this provides a with various beneficiaries analysis in listing in the above mentioned markets. Case study: - Multiple case study. This aim of this study is to use multiple case study methods they provides validity and reliability information. And using multiple case studies and comparing with each other provides a compelling results rather analysing single case study. To generate and understand all possible motivation conditions in raising capital in international financial markets multiple case study approach is a suitable option. Case sampling: size and selection criteria:The practical view for case size is that six to eight cases form a understanding minimum and that ten to fifteen cases constitute an absolute maximum. Indeed, the logic is that when a researcher has too many cases, he risks losing the focus and the in-depth view of the case. Nevertheless, the researcher will follow Eisenhardts (1989) argument that between four and nine cases often works well (p.545), while also considering the limited resource of time available to the researcher. Hence, at this stage, six to eight cases will be selected for this research. Each case study provides information that satisfies research objective and research question. To achieve this worth-full information and study the following selection criteria is used in the case studies. . 1. Companies which have raised capital in UK equity markets. 2. Companies which have good corporate governance and provided long term performance. 3. Companies which provided investor protection with accounting standards. 4. Companies from different industrial sectors. It is understandable that companies which have intention to raise capital in international financial markets offer secondary IPOs in the overseas markets. First of all small firms raise capital in domestic market, and at the peak time to raise capital again they look for different opportunities to raise capital in overseas market. So these companies can be regarded as large companies. And Indian government point of view firms worth more
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than 500 crores and have more than 50 employees are considered as large scale industries. So the term large is used for cases study analysis. Considering the limitations of time and finance, this is an important consideration. The objective of the research is to gain a thorough understanding of all the potential reasons, for extent of under-pricing of Indian IPOs in UK equity markets.. Therefore, the research will aim for 43 across different national markets and industrial sectors. It must be stressed, however, that due to limited resources of time and finance, typically associated with student research, this study will also use the emergent sampling strategy of convenience sampling (Patton, 1990). For example, it may not be possible to achieve cases that fit the research questions from different cultural and industrial backgrounds. Flexibility is preserved through this convenience sampling strategy. Data collection:Data is the primary part of the research and various data collection methods were used for the research. This research will use multiple data collection techniques as this will be the specific requirement for the study technique. During the research period if one data collection method is failed, another will be used to achieve the objectives of the research and this is the technique behind multiple data methods. Depth interviews with the top executives is the primary data collection method in business and management studies, but the time constraints and financial resources drags back to use the secondary data collection methods such as desk research. More often in this present era of globalisation huge amount of secondary data is available in multiple ways and it also fulfils the research objective. This research will primarily use the secondary data from the research papers, market research reports leading journals and newspapers such as Wall Street chronicle and Financial Times. The local press and business magazines also provide rich information as secondary data. Internet is cheapest and useful resources in providing the secondary information. When all this moulded together, they provided rich information as secondary data to achieve the object for this research. As mentioned above, an important factor motivating data collection is triangulation. The basic tenant of triangulation is that the weakness of a single generation source is
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compensated by the counter balancing strength of another method/source. Therefore, the researcher will aim to establish a chain of evidence by utilising multiple secondary data sources thereby enhancing validity and reliability. Data analysis:This research will use the three stage data analysis technique. First of all data is reduced or narrowed down to such a way that to fit actually in to the research. Given constraint of word limit data reduction is mandatory. The reduced data is then coded into different forms to achieve the objective of the research. Table of Contents:Chapter I:1.1. Introduction 1.2. Rationale of the Study 1.3. Importance of Studying Indian IPOs listed in London Stock Exchange 1.4. Outline of the Research 1.5. Research Objective and Research Questions 1.5.1. Research Objective 1.5.2.Research Question 1.5.3.Summary of the Chapters and Plan of the Study 1.5.4.Plan of the study 1.5.5.Summary of the Chapters Chapter II:-An Analysis of Indian and UK equity markets. 2.1. Introduction 2.2 Importance of Stock Markets in India 2.2.1. Problems in Indian Equity Markets 2.2.2. Under-pricing or Price Premium in Indian Equity markets 2.2.3. Existence of Grey Markets in Indian Equity Markets 2.3 Possible Motivations for Listing in Overseas Stock Exchanges 2.3.1. An Overview of UK equity market 2.3.2. London as financial capital of the world
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2.3.3. Equity market in London 2.3.4. Cost of Capital Raising in London 2.3.5. Greater analyst coverage 2.3.6. Valuation Arbitrage 2.3.7. Foreign capital for global expansion 2.4. Conclusion Chapter III:- Literature Review 3. Introduction 3.1. Literature review 3.1.1. Winners Curse Model 3.1.2. B-N Model- Principle Hypothesis 3.1.2.1 Share allocation Strategies 3.1.2.2 Price Revision during Book Building Process 3.1.3 Principle Agent Model 3.2. Conclusion
Chapter IV:- Whether London is an good platform for Indian companys overseas

listing. An empirical analysis on under-pricing.

4.1 Data Collection 4.1.1 These data collection methods include prices of those companies, which satisfy the following criteria. 4.1.2. Research Hypothesis 4.2. Methodology 4.2.1. Analysis of Indian IPOs under-pricing for initial day 4.2.2 Comparative analysis of Indian and Non-Indian IPOs 4.3. Short run Analysis 4.4. Long-Run Analysis 4.5. Factors affecting IPO initial price performance 4.5.1. Age of the company and Initial returns 4.5.2. Offering Size or amounts of funds raised (SIZE) and under-pricing 4.5.3. List Lead time and Initial price performance

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5.1.Summary and Conclusion 5.2Scope for further research References Appendix Tables and Graphs:Tables:1. Indian Companies listed in London Stock Exchange 2. Elements in Cost for Listing and Raising Capital 3. Annual listing fees comparison between LSE and NYSE 4. IPO listing fee comparison of LSE and NYSE 5. Under writer fees comparison between LSE and NYSE 6. Summary of Initial returns 7. Descriptive statistics of Initial return year wise 8. Descriptive statistics of Market Adjusted Initial return year wise 9. Comparative analysis of Indian and Non-Indian IPOs 10. Comparing Initial return and Short Run analysis of returns 11. Comparing short run returns with Initial returns and Market Adjusted initial return 12. Descriptive Statistics for Short run analysis over one week period 13. Descriptive Statistics for Short Run Analysis over one month period 14. Descriptive statistics for Short run Analysis over Six week period 15. Initial returns and market adjusted initial returns for long run analysis 16. Descriptive Statistics for Long run analysis over one year time period 17. Descriptive Statistics for Long Run Analysis over two years time period 18. Descriptive Statistics for Long Run Analysis over three years time period 19. International Evidence on factors for IPO under-pricing 20. Age of Companies listed in LSE 21. Initial returns by Age 22. Initial returns by Issue Size 23. Initial returns and Market Adjusted Returns by Offer size 24. Initial Returns and Market Adjusted Returns by List Lead time 25. Initial Returns and Market adjusted returns by Post Issue Promoter Holding 10024495 Page 106

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Graphs:1. Equity market capitalization of Indian Stock Exchanges 2. Short Run analysis of Indian IPOs 3. Averages age of Indian Companies

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