The Determinants of Survival of Initial Public Offerings in India: An Empirical Study

--Garima Baluja and Balwinder Singh

A number of researchers have examined the performance of Initial Public Offerings (IPOs) both for short and long run. However, the empirical evidence on the survivability of issues in the aftermarket is quite scant, especially in India. In the light of huge volatility in the Indian IPO market and the high rate of failure of IPOs, a need arises to explore the survivability of IPOs in the aftermarket. Hence, this paper attempts to examine the survival profile of Indian IPOs for the period 1992-2011. In order to examine the influence of issue-, market- and company-specific variables on the post-issue transition of IPOs into survivors and non-survivors, logistic regression model is estimated. Further, survival analysis methodology is employed to investigate the effect of observable factors on the survival time of the issue. The study reveals that issues with large size, more demand, backed by reputed lead managers and of older firms survive for longer duration. However, issues with high underpricing, high risk, more list delay and during the period of high market level as well as high IPO activity, survive for smaller duration in the aftermarket. The survival probability and the duration of IPO is positively affected if it belongs to information and communication, accommodation, construction, wholesale and retail trade, and finance and insurance sectors, and it is negatively affected if IPO belongs to agriculture and administration sectors.

© 2014 IUP. All Rights Reserved.

The Impact of Branch Network on Credit Risk Management Practices in Indian Banking Sector

--Anju Arora

The branch network of a commercial bank provides a platform for drawing customers for taking credit, and so the Credit Risk Management (CRM) practices need to be carefully chosen and implemented to ensure timely identification of credit risks across all branches and precise calculation/ measurement of aggregate credit risk, and to build appropriate systems and internal controls at head office such that acceptable level of credit risk is assumed by the banks’ branches at all times. The present study attempts to assess whether the size of branch network has significant impact on the diverse range of CRM practices followed by commercial banks in emerging economies by analyzing the data collected from 35 scheduled commercial banks in India, an emerging economy. The responding banks were categorized into wide, average and low branch network size on the basis of the number of branches of these banks and responses were sought with regard to a vast range of CRM practices relating to organizational structure, policy guidelines, targets defined in CRM strategy, credit risk rating model, monitoring practices, risk estimation procedures and other operations and systems at portfolio level through a structured questionnaire. The findings reveal that there is no significant difference in CRM practices of banks with varying size of branch network. Another important inference is that as the size of branch network increases, the commercial banks prefer to follow the approach of higher degree of specialization and centralization of authority in CRM. The study also infers that Indian banks with wide branch network are ahead of other sample banks with regard to the scope of CRM policy, credit risk analytical abilities and credit risk monitoring procedures. The findings indicate that size of branch network or emphasis on bricks-andmortar branches to deliver financial services in emerging economies, in particular India, has not served as a deterrent in following benchmark CRM practices. The study suggests further potential areas of improvement in CRM across Indian banks of varying branch network size, which has policy implications for bank management and regulatory authority alike.

© 2014 IUP. All Rights Reserved.

Indian Currency Market Risk Analysis: Value-at-Risk Approach

--B G Poornima, Y Srujan Reddy and Y V Reddy

Emphasizing the need for risk mitigation arising out of excess volatility in rupee experienced by India post implementation of the market determined exchange rate regime in 1993, currency futures were introduced in India in 2008, and currency trading has become one of the most important financial operations since then. In this paper, an attempt has been made to measure and compare the market risk prediction ability of historical simulation, Monte-Carlo simulation, Exponentially Weighted Moving Average (EWMA) and linear parametric VaR approaches for Indian currency spot and futures market. Using the data from 2008 to 2013, the VaR associated with the three main currencies in the economy, namely, US dollar, euro and UK pound sterling, is calculated. Conditional and unconditional coverage tests have been applied to backtest the results of various VaR approaches. The results indicate that Monte-Carlo simulation is appropriate in predicting market risk. Further, it is also found that risk seems to be higher in the future market as compared to the underlying markets.

© 2014 IUP. All Rights Reserved.