Nexus Between the Issue Size and The Initial Returns on Indian SME IPOs

Amrutha M1, & Dr. P. Natarajan2
1Research scholar, Department of Commerce, School of Management, Pondicherry University, Chinna Kalapet, Puducherry, India
2Professor, Department of Commerce, School of Management, Pondicherry University, Chinna Kalapet, Puducherry, India
DOI – http://doi.org/10.37502/IJSMR.2025.8604

Abstract

For small and medium enterprises, being listed on a stock exchange marks a significant milestone in their growth journey. This research examines the connection between issue size (IS) and the initial performance of SME IPOs in India. The analysis is based on a dataset of 556 SME IPOs listed on the SME platforms of BSE and NSE between 2018 and 2024. Using multivariate cross-sectional regression analysis conducted through SPSS, the study also incorporates control variables, including firm age, oversubscription levels, and prevailing market conditions (hot market and cold market). On average, the SME IPOs were underpriced at a rate of 26.78%. When adjusted to the market, the average underpricing rate was 25.63%. It is found that larger IPOs are more likely to yield greater initial returns. IS has a significant positive connection with both the initial raw returns and initial market-adjusted returns. The market condition also exhibits a significant positive relation with the initial returns, indicating that IPOs during hot markets yield higher initial returns. The variables age of the firm and subscription times were found to be statistically insignificant in relation to the initial returns. These results lend empirical support to the signaling theory and the window of opportunity hypothesis. This article adds to the current literature on the underpricing of IPOs, with an emphasis on the Indian SME IPO market. The study also suggests that regulators should implement enhanced disclosure norms and due diligence for smaller IPOs to improve transparency, and a centralized SME IPO database should be created to aid informed decision-making by stakeholders.

Keywords: SMEs, IPOs, SME IPOs, underpricing, initial performance, IPO market, issue size.

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https://doi.org/10.1016/0304-405X(89)90060-3

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