Does certification work in emerging markets? evidence from the Indian IPO market

Krishnamurti, Chandrasekhar and Thong, Tiong Yang and Vishwanath, S. R. (2009) Does certification work in emerging markets? evidence from the Indian IPO market. In: 2009 JCF Conference on Emerging Market Corporate Finance, 24-25 Aug 2009, Beijing, China.

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There is inconclusive evidence regarding the economic value of certification in the context of IPOs in developed markets. Using a natural experiment of regulator mandated IPO grading requirement, we examine the effects of third-party certification in the Indian IPO market. We summarize our empirical results below. First, underpricing is unaffected by the grading process. Second, stock price informativeness as proxied by idiosyncratic volatility increases significantly due to IPO grading process. Third, retail and institutional subscription levels are significantly positively associated with IPO grades after controlling for other certification mechanisms such as underwriter reputation, group affiliation, analyst recommendation and venture capital backing. Finally, using a pseudo grading process we conclude that IPO grades are not mechanically derivable from publicly available information. In a nutshell, we use our unique setting to examine the usefulness of certification in emerging markets with institutional voids.

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Item Type: Conference or Workshop Item (Commonwealth Reporting Category E) (Paper)
Refereed: Yes
Item Status: Live Archive
Additional Information: No evidence of copyright restrictions preventing deposit.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 02 Sep 2010 10:44
Last Modified: 02 Jul 2013 23:38
Uncontrolled Keywords: price information, IPO Grading, idiosyncratic volatility, certification
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
Socio-Economic Objective: B Economic Development > 90 Commercial Services and Tourism > 9001 Financial Services > 900199 Financial Services not elsewhere classified

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