Rohit Bansal et al./ Elixir Fin. Mgmt. 53C (2012) 12065-12069 12065 1. Introduction Unquestionably, initial public offerings (IPOs) have generated an enormous amount of public interest and are one of the most researched areas in finance. There are a number of theoretical explanations and models underpinning this Initial public offering (IPOs) underpricing. The popular justifications for this observed phenomenon rest upon the possible existence of information asymmetries, mainly in the form of ex-ante uncertainties about share prices. Also, according to (Welch, 1989), (Grinblatt & Hwang, 1989) and other similar studies, there exists a signaling mechanism where firms send signals to the market by underpricing their IPOs. Moreover, there are other possible explanations such as underwriter reputation theories, investor sentiment theories and prospect theories to explain the degree of underpricing in the IPO market. 2.0. Underpricing Anomalies One of the most important models of underpricing is the one developed by (Rock, 1986) based on the winner’s curse hypothesis. Rock distinguishes between instructed and uninformed investors. If the issues are underpriced, IPOs will be oversubscribed by authoritative investors, resulting in a limited number of shares being available to uninformed investors. If the issues are overpriced, IPOs will be sold exclusively to uninformed investors who will earn negative initial returns. Thus, uninformed investors will be winning the entire issue but at an unfavorable price, creating a situation termed the winner’s curse. In order to keep uninformed investors in the IPO market, securities are offered at a discount from their expected after market prices. Thus, according to the winner’s curse theory, IPO underpricing should decrease if the information asymmetry between informed and uninformed investors is reduced. Empirical studies have found evidence that the underpricing for IPOs of financial institutions is related to proxies for asymmetric information. Signaling (Allen and Faulhaber, 1989) asymmetric information (Ibbotson, 1975) Offer size (W.L. Megginson and K.A. Weiss, 1991) age of the firm (Muscarella and Vetsuypens, 1989) market capitalization, (McDonald and Fisher, 1972), (Baker and Wurgler, 2007), Pricing mechanism (Bansal and Khanna, 2012) determinants of IPO underpricing at BSE (Bansal and Khanna, 2012). (Booth, 1996) – First started ownership status, (Stoughton, 1998) (Reese, 1998), (La Porta, 1999) – Institutional investors avoid to buy pubic offer (Yong, 2001), (Kim, 2004) described about the behavior pattern of different investors class and the impact of their behavior pattern on the level of underpricing. Their findings are also explained that the significant association of share holdings and the level of underpricing. (Leite, 2007), generalized the informational assumptions of the (Rock, 1986) to address empirical evidence and conjectures that the standard model based on informed and uninformed investors is unable to address. (Dolvin and Jordon, 2008), addressed the question of whether or not periods of high underpricing adversely affect pre- existing shareholders. They found that high levels of underpricing are associated with increased share retention, Tele: E-mail addresses: rohitbansaliitr@gmail.com © 2012 Elixir All rights reserved Determinants of Initial public offerings (IPOs) Rohit Bansal and Ashu Khanna Indian Institute of Technology, Roorkee, Uttrakhand, India – 247001. ABSTRACT This paper interacts to explain ownership structure, post promoters holdings and Ex-ante information at the level of underpricing in the Indian primary market. The study is based on IPO that listed at Bombay stock exchange given that (April-1999 to Dec-2012). Multiple linear regressions are used to distinguish the relationship between various independent variables with the dependent variable, i.e. level of underpricing. Therefore, we used ordered probit regression to find the exact relationship of pricing mechanism (book build pricing mechanism) with the other variables. The outcomes reveal that, Firm’s age, book build pricing mechanism, ownership structure, retail subscriptions & market capitalization explained the degree of underpricing, These findings were more important to the retail and institutional investors, who likely to buy IPOs in the Indian primary market. © 2012 Elixir All rights reserved. ARTICLE INFO Article history: Received: 2 October 2012; Received in revised form: 7 December 2012; Accepted: 14 December 2012; Keywords IPOs, Post market crisis, Ownership structure, Share holding pattern, BSE, Underpricing, Firm specific factors, Market related variables. Elixir Fin. Mgmt. 53C (2012) 12065-12069 Finance Management Available online at www.elixirpublishers.com (Elixir International Journal)