Abstract

In this paper, we declare that such objective, autonomous and exogenous certifying mechanism provides a better opportunity to test the well-established credit rating hypothesis, especially in the context of emerging markets with institutional voids. Employing a sample of 142 Indian IPOs (January 2007 to December 2012), we also experiment Ex-ante uncertainty with the efficacy of IPO (Initial Public Offerings) grading mechanism. We procure; grading decreases IPO underpricing and positively influences demand of retail investors, issue size, earnings before interest and dividend, long-term debt-equity equity ratio and profit to the book value ratio. Grading diminishes the number of share offered, a debt-equity ratio, and earnings before interest, dividend and tax, fixed to assess ratio and is having much impact on Ex- Ante uncertainty. Notwithstanding, grading does not affect subscription rate, offer timing (difference in days between offer days and listing days), firm’s age, debtors turnover ratio, creditor payment method, cash to price earnings ratio, PIPH (post issue promoter's holding), interest coverage ratio, inventory turnover ratio, market capitalization, price earnings ratio, return on capital employed and return on net worth of the IPOs. IPO grading is prominent to capture firm size, business group affiliation and firm’s quality of corporate governance. Our findings put forward that, in emerging markets, regulator’s role to signal the quality of an IPO contributes with respect to the market welfare.

Key words: Initial Public Offerings, underpricing, credit rating, ownership structure, Ex-ante uncertainty.