Competitive and contagion effect of initial public offerings in India: An empirical study

Abstract

This study aims to empirically examine the impact of initial public offerings (IPOs) on the equity share prices of industry rivals. The cross-industry sample comprises 13 companies across six different industries in the Indian market. The study investigates four key variables: the stock returns of industry rivals before and after the IPO of a new market entrant, as well as the daily traded volume of both the market entrant and industry rivals in the days following the IPO. The analysis reveals a significant association between the stock prices of industry rivals before and after the listing date of a market entrant, as evidenced by the adoption of three distinct time windows. However, no significant relationship is observed between the daily traded volume of market entrants and industry rivals. The results reveal the presence of the competitive and contagion effect and the lack of active capitalisation of this short-term phenomenon by investors.

Keywords

• Initial public offering
• Supply effect
• Competitive effect
• Contagion effect
• Investment strategy