India is one of the largest IPO markets in the world. However, IPO research in the developing world is limited. The primary objective of this study is to test the performance of Indian IPOs based on sponsored versus non-sponsored issues. We classify the IPO sample into venture capital (VC) and private equity (PE) sponsored issues and non-sponsored ones and include key operating characteristics as performance predictors.The dependent variable is the buy and hold abnormal returns (BHARs). The study uses key operating characteristics such as market capitalization, net sales, EBITDA, depreciation and amortization, price-to-book, asset turnover and leverage. A cross sectional analysis is applied to test the long run performance.Sponsored IPO issues convey favourable information to investors about future earnings and prospects of the firm. Our findings indicate that sponsored issues and, in particular PE sponsored issues are perceived by investors as an indicator of quality certification for the Indian IPO market There are significant differences in terms of market size, industry classification and key operating characteristic.This study has had to deal with much smaller samples of PE and VC when compared to similar studies conducted in the developed markets such as UK and US. Further robustness tests on the market performance using factor models posed a problem due to limitation of the availability of the factors. For the capital markets investors and policy makers, this research demonstrates the increasingly important role that private equity and venture capital funds play in the investment landscape in India. It exhibits the increasing investor confidence in the Indian capital markets.
Using a sample of Indian IPOs comprising VC-sponsored and PE-sponsored issues, this study analyses the performance of Indian IPOs in an emerging market setting. This study, thus, contributes to the limited IPO research undertaken in developing markets.