Financial Risk Management
The Impact of Market Conditions on the Aftermarket Survival of Initial Public Offerings in India: An Accelerated Failure Time Approach

Article Details
Pub. Date : Jun, 2019
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM11906
Author Name : Garima Baluja and Balwinder Singh
Availability : YES
Subject/Domain : Finance Management
Download Format : PDF Format
No. of Pages : 24



The market conditions are the most obvious and the least controllable that influence the decision of a company to issue an Initial Public Offering (IPO). The anecdotal literature suggests that timings are everything for an IPO. The market conditions are crucial not only for the performance of an issue but also for its survival on the trading exchange. The Indian primary market has witnessed several volatile market conditions in the post-SEBI (Securities and Exchange Board of India) era. The introduction of SEBI and abolition of Controller of Capital Issues (CCI) created ‘hot issue phenomenon’ in the market, wherein several new issues entered the market, however, only a few managed to survive in the aftermarket. Such high failure rate of IPOs and diverse market conditions generated the need to explore the survival profile of IPOs in India. Using the most sophisticated methodologies, i.e., logistic regression and survival analysis, the present study explores the survival profile of IPOs in hot market conditions of India. The empirical investigation reveals that most of the IPOs entered the market in hot issue period (1992-1996) but they failed to survive longer in the aftermarket. Overall, the Kaplan-Meier estimation exhibits a significant decline in survival rate and a growth in hazard rate during the first 50-60 months of listing. The analysis of market-specific variables and survival profile of IPOs reveals that issues in the period of high IPO activity fail to sustain longer on the exchange. Apart from this, several offering and company-specific factors also exhibit significant results. The findings of this study will have fruitful implication for the issuers, investors, regulators, and the entire capital market as they can evaluate the future prospects of IPOs and can take rational decisions accordingly.


Over a period, the issue of corporate failure has become a matter of concern in business. ‘Failure’ simply refers to the inability of a firm to meet its desired objectives (Walter, 1957; Donaldson, 1962; and Li and Lui, 2010). One such kind of failure is the delisting of issue from the market. Delisting is a traumatic event for both the firm as well as the shareholders (Li et al., 2006). The failure of issue on the trading exchange may lead to bankruptcy, liquidation or momentous changes in the control of a firm and consequently result in huge losses to the firm (Noor and Iskandar, 2012). Further, it hampers the interests of investors, creditors, and the economy at large. In the past few years, investors in Initial Public Offerings (IPOs) had truly a bittersweet experience due to such failures in the aftermarket (Peristiani, 2003). Agarwal and Gort (2002) observed that roughly 5-10% of the firms in the US left the market over the span of a single year. Similarly, Fama and French (2004) reported a significant increase in the number of new listings on the NASDAQ during the period 1973 and 2001, followed by a sharp decline in survival rates as well. Apart from issuers and investors, the efficiency as well as the functioning of the entire market is highly influenced when an issue fails to survive on the exchange. Since the survival of IPO holds huge importance not only for the issuer but also for the investors as well as the economy at large, the research efforts in this area have suddenly got a thrust.