| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP221021 |
| Author Name | : Abhishek Sinha |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 22 |
The infrastructure sector determines GDP growth. With debt drying up in India due to increasing Non-Performing Assets (NPAs), equity has become an important source of funding. The promoter who is raising the money and is selling his equity through offer for sale, is not able to maximize his returns, as the stock markets evidence 25%-30% underpricing. Hence, there is a need to identify the drivers of underpricing in the infrastructure sector, as there is limited study in this area. The study has identified 23 variables from literature and then vetted the variables from 10 industry experts. The data comprises stocks listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in the period 2003 to 2015 collected from Prime Database, BSE and NSE website. To avoid overfitting, Principal Component Analysis (PCA) followed by stepwise regression are used to identify factors driving underpricing. Ten factors related to the market, fundamental and macroeconomic factors are identified as drivers of underpricing in infrastructure sector. Hence, factors such as economic growth, balance sheet size and hot and cold period are the drivers of underpricing in infrastructure sector. The management should take cognizance of these drivers while listing the stock in the market to reduce underpricing.
The growth of a developing nation hinges on infrastructural growth (Sanchez-Robles, 1998; Esfahani and Maria, 2003; and Perkins et al., 2005). The same is contingent on private funding. The Public-Private Partnership is a means through which government can bridge the gap in investment by raising funds (Grimsey and Mervyn, 2002; Kwak et al., 2009; and Francis and Elliott, 2019). The private sector has better managerial skills, which enables organizations to reduce cost and increase profitability. Thus, it makes investment in the infrastructural sector highly attractive for them (Winch and Onishi, 2012). Furthermore, it helps to maximize the value for money of infrastructure provisions (Savas, 1987). However, the returns on a project is contingent upon the method of financing used. There are two forms of funding available - debt and equity. Traditionally, promoters have relied more on debt in India. In May 2018, the total funding to the infrastructure sector by the government