Journal of Legal, Ethical and Regulatory Issues Volume 24, Special Issue 6, 2021 Legal Ethics and Responsibilities 1 1544-0044-24-S6-63 PRICING AND PERFORMANCE OF INDIAN IPOS IN THE FREE-PRICING ERA: AN EMPIRICAL STUDY Iqbal Thonse Hawaldar, College of Business Administration, Kingdom University Naveen Kumar K.R., Poornaprajna Institute of Management Mallikarjunappa T., Central University of Kerala ABSTRACT After the scrapping of Capital Issues (Control) Act, 1947 putting an end to the regime of Controller of Capital Issue (CCI) and allowing free pricing of public issues, capital market in India witnessed IPO activities from different sectors of the economy which was hitherto restricted by the CCI. The present paper tries to study two of the widely researched IPO anomalies in India during the free-pricing era: initial underpricing and long run underperformance. Consistent with the extant work, we find that IPOs in India belonging to the period 1992-2011 are also significantly underpriced. However, contrary to most of the international findings, the long run performance of these IPOs is also found to be positive and significant. Keywords: Controller of Capital Issue, Free-Pricing, Initial Public Offerings, Underpricing, Underperformance INTRODUCTION The IPOs that usually offer substantial positive return on listing day tend to underperform their benchmark indices in the long run. Such underperformance was first observed for US IPOs by Ibbotson (1975). It was further documented by Ritter (1991); Loughran (1993); Loughran & Ritter (1995). As far as Indian capital market is concerned, there are a lot of changes took place since 1991 (Kumar et al.,, 2020; Pinto et al.,, 2020; Bolar et al.,, 2017; Hawaldar, 2018; Iqbal, 2014) and the efficiency of Indian stock market has been tested by many researchers (Iqbal & Mallikarjunappa, 2011;2010;2009;2007; Mallikarjunappa & Iqbal, 2003). Following the liberalization process initiated and the announcement of famous Industrial Policy, 1991, several changes took place in the capital market as well. Firstly, the Capital Issues (Control) Act, 1947 was scrapped in 1992 putting an end to the regime of CCI and allowing free pricing of public issues. In the place of CCI, Securities and Exchange Board of India (SEBI) was set up and entrusted with the responsibility of regulating the capital market activities. Secondly, the pricing of IPOs in India was based on fixed-price mechanism for almost the entire decade of nineties. REVIEW OF LITERATURE Listing Day Performance One of the first and widely tested theories of IPO underpricing was ‘information asymmetry theory’ developed by Baron (1982); Rock (1986). According to Baron, there is information asymmetry between investment banker to an IPO, being better informed, and the issuer. As a means to reward his superior information, investment banker gets the power to set the issue price. Using this power, he sets the issue price below its true worth for his personal benefits. However, contradicting this, both Muscarella & Vetsuypens (1989); Cheung & Krinsky (1994)