Initial Public Offering (IPO) has been one of the most popular routes chosen for raising funds by any growing company. It is a common experience that many IPOs are underpriced. This paper attempts to find out the factors which influence the underpricing decision. Earlier researchers had found the influence of financial factors like ownership retention, size of the issue, age of the firm, Debt-equity ratio, NAV and non-financial factors like underwriter’s reputation, venture capital funding. An attempt is made to find out if Net-worth to Total Assets, Qualified Institutional Buyers allotment, Earnings per share, Return on Net-worth and IPO Grading, Green-shoe option also would influence the degree of underpricing of IPOs in the Indian context. Data relating to April 2003 to March 2012 have been studied with reference to the infrastructure sector.

Choosing Initial Public Offering (IPO) route to acquire funds is a remarkable turning point in the history of any growing company. When the company is in need of huge amount of funds to handle the growing business, the existing capital contributed by the promoters would not be enough, nor can it borrow funds with specific commitment of paying competitive interest rate. The most suitable route preferred is raising equity capital from public. Through this route existing promoters or the Venture Capitalists (VC) get an opportunity to diversify their investments and to book capital gains. The act of going public itself creates a colorful feather in the cap of the company and the consequential publicity could bring indirect benefits like hiring capability and talented executives, increased market image, etc. Prior to going public, the promoters are accountable to themselves, but now after going public and procuring funds from a larger public, new obligations befall the company in terms of being more transparent and meeting disclosure requirements; thus becoming more accountable to larger public.

Michelacci and Suarez (2004) showed that when an industry is growing rapidly more star-up firms try to enter and vie with one another for financing their projects. Under these circumstances VC find greater opportunities. The increased demand for VC funding could increase the cost of funds to the start-ups and they tend to go public.

Applied Finance Journal, Service Sector IPOs, Factors Influencing Underpricing, An Indian Perspective