Effect of 2008 Stock Market Crash on the Quality of IPOs in the Indian Capital Market Jindal Divya*, Singla Ravi** *Apeejay School of Management, New Delhi, India **University School of Applied Management, Punjabi University, Patiala, Punjab, India Online published on 4 April, 2015. Abstract A stable stock market is essential for the healthy growth and functioning of the primary market. However stock markets are intermittently jolted by crashes which erode the wealth of investors and shake their confidence. One such crash was experienced in 2008 when all the major stock markets in the world including the Indian stock market crashed. Stock market crashes have a significant effect on the new issues markets in terms of the number of IPOs entering the market, the response of the investors to the IPOs as well as the quality of the IPOs. This paper studies whether the age, profitability and size of the issuing companies was affected by the 2008 crash. Further, the effect of the crash on the issue size of the IPOs was also analyzed. The analysis was based on the IPOs issued three years prior to and three years post the 2008 crash. It was observed that IPOs issued during the three years after the crash period were on average larger in size than those issued three years prior to the crash period in 2008. There was also an increase in the mean size of the IPO issuing companies. It was found that the mean age of the companies coming out with an IPO in the pre-crash period of three years were not significantly different from the mean age of the issuing companies during the three year post-crash period. The results were similar for the profitability of the issuing company. Evidently, the stock market crash of 2008 did not result in older firms issuing IPOs after the crash. The crash did not also lead to issue of IPOs by more profitable companies than the companies issuing IPOs before the crash. Accordingly it can be concluded that there was an improvement in the quality of the firms issuing IPOs after the stock market crash as larger firms would be expected to be less risky as they can sustain economic fluctuations and the resultant volatility in the stock market. These less risky firms would be in a better position to raise higher amounts of funds through bigger issue sizes. This could explain the increase in the mean issue size after the stock market crash. Top Keywords IPOs, IPO quality, stock market crash, issue size. Top |