Impact of accounting conservatism on IPO under-pricing: evidence from India

Figures & data

Table 1. Variables

Variables	Description
UP (SMABR)	Calculation of under-pricing with stock adjusted beginning returns on the opening of the stock first day of the IPO stock
UP (MBRD)	Calculation of the Under-pricing with the book ratio differences between the entry day and pre-offering price
C.A.C. (TAA)	Accounting convention (conservatism) (total accruals approach).
Book Value	The book value is a dummy variable. The variable equals 1 if the company value goes public through the book structure mechanism
Constant and book value	the relationship between the CONS and BOOK
L_Day	Indicates the difference between offering and listing of an IPO stock
Size_off	The natural logarithm of the offering price and size of Individual IPO stock value.
P_ownership	Number of shares percentage of shares by Public and state-run-owned after IPO
L_ ownership	% of shares by the private sector owned by legal units after IPO
T_shares	% Of openly tradable shares of individually IPO
VOL	Each year number of IPOs
Integer	When a dummy variable equals 1
Leverage	A Company debt divided by assets
Return on Assets	EBIT divided by total assets

Table 2. Sample selection

Sample selection Procedure	Sample dropped	After pilot study
sample selection from 2000 to 2020 available from the Indian stock market, ICAI Accounting Research Foundation, and CMIE Database		886
removing firms in financial industries after the pilot test	39	847
After the pilot test	3	844

Source: Author calculation

Table 3. Descriptive statistics of Initial Public Offer (IPO) for A- share in India by year

Variables	Year
	Statistics	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Market-Adjusted Initial Returns	Mean	1.023	1.009	0.628	0.567	0.603	0.744	1.467	0.761	0.519	0.639	0.986
	σ	0.473	0.346	0.218	0.329	0.263	0.650	0.864	0.861	0.567	0.357	0.753
	Median	0.948	1.105	0.519	0.491	0.452	0.584	1.681	0.968	0.653	0.627	0.951
	N	48	48	48	48	48	48	48	48	48	48	48
Total Accruals Approach	Mean	−0.107	−0.008	0.001	−0.006	0.013	−0.002	−009	−0.014	−0.045	−0.012	−0.008
	σ	0.047	0.062	0.009	0.019	0.053	0.035	0.031	0.038	0.073	0.056	0.050
	Median	−0.021	−0.011	0.049	−0.07	0.028	−0.003	−0.004	−0.014	0.081	−0.018	−0.006
	N	56	56	56	56	56	56	56	56	56	56	56
Book Building Mechanism	Mean	0.816	0.158	0.006	0.246	0.147	0.042	0.241	0.824	0.685	0.005	0.436
	σ	0.0241	0.231	0.102	0.009	0.069	0.021	0.009	0.081	0.052	0.004	0.357
	Median	0.000	0.002	0.013	0.085	0.369	0.156	0.053	0.052	0.146	0.051	0.008
	N	52	52	52	52	52	52	52	52	52	52	52
No Of Days of Offering and Listing	Mean	15.009	7.420	8.038	9.258	9.058	8.159	6.976	8.982	10.007	12.703	9.561
	σ	4.047	5.201	1.041	1.008	1.048	2.950	2.369	1.307	2.913	3.054	2.001
	Median	12.250	7.049	6.039	8.305	8.672	7.486	6.741	6.819	8.351	9.824	9.007
	N	65	65	65	65	65	65	65	65	65	65	65
Offering Size of Individual IPO Stocks	Mean	472.739	361.324	314.029	913.063	410.028	741.391	987.019	862.000	694.439	904.000	853.361
	σ	705.071	891.005	813.041	723.018	420.036	6.310	800.371	883.362	610.583	847.519	734.391
	Median	281.619	194.301	214.710	612.007	382.491	702.441	837.172	812.411	541.001	821.308	683.326
	N	34	34	34	34	34	34	34	34	34	34	34
% Shares Held by Non-State-Owned	Mean	0.374	0.332	0.274	0.145	0.140	0.134	0.162	0.147	0.104	0.154	0.219
	σ	0.132	0.143	0.172	0.162	0.211	0.177	0.162	0.153	0.121	0.178	0.307
	Median	0.476	0.440	0.412	0.105	0.037	0.004	0.000	0.00	0.00	0.099	0.037
	N	50	50	50	50	50	50	50	50	50	50	50
% Publicly Tradable Shares	Mean	0.210	0.126	0.194	0.152	0.325	0.271	0.312	0.201	0.429	0.372	0.291
	σ	0.126	0.120	0.157	0.173	0.471	0.159	0.143	0.327	0.271	0.274	0.281
	Median	0.22	0.029	0.068	0.106	0.294	0.184	0.361	0.081	0.384	0.372	0.371
	N	94	94	94	94	94	94	94	94	94	94	94
No of IPOs in each year	Mean	48	56	52	65	34	50	94	75	86	102	110
	σ	00	00	00	00	00	00	00	00	00	00	00
	Median	48	56	52	65	34	50	94	75	86	102	110
	N	75	75	75	75	75	75	75	75	75	75	75
Dummy Variable is an Integer	Mean	0.085	0.129	0.087	0.147	0.201	0.173	0.081	0.127	0.230	0.164	0.148
	σ	0.241	0.295	2.483	2.481	3.201	2.583	2.193	2.583	3.100	2.916	3.184
	Median	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000
	N	86	86	86	86	86	86	86	86	86	86	86
Dummy Variable is an Exchange	Mean	0.001	0.012	0.025	0.274	0.738	0.815	0.753	0.629	0.847	0.816	0.435
	σ	0.006	0.089	0.017	0.371	0.313	0.273	0.237	0.184	0.163	0.151	0.251
	Median	0.000	0.000	0.000	0.038	0.000	0.937	0.893	1.000	1.000	1.000	1.000
	N	102	102	102	102	102	102	102	102	102	102	102
Dummy Variable is an Underwriter	Mean	0.327	0.137	0.105	0.203	0.193	0.357	0.272	0.251	0.210	0.291	0.170
	σ	0.431	315	0.263	0.210	0.083	0.280	0.312	0.160	0.318	0.119	0.340
	Median	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000
	N	110	110	110	110	110	110	110	110	110	110	110
Firm’s Total Debt Dividend Total Assets	Mean	0.353	0.448	0.353	0.315	0.438	0.581	0.361	0.465	0.385	0.357	0.427
	σ	0.221	0.223	0.212	0.084	0.131	0.201	0.216	0.261	0.174	0.148	0.274
	Median	0.370	0.465	0.364	0.381	0.328	0.276	0.382	0.473	0.486	0.359	0.485
	N	32	32	32	32	32	32	32	32	32	32	32
Return on Assets	Mean	0.056	0.075	0.082	0.089	0.089	0.063	0.086	0.102	0.094	0.136	0.274
	σ	0.043	0.075	0.037	0.028	0.047	0.084	0.036	0.067	0.042	0.085	0.074
	Median	0.084	0.042	0.084	0.083	0.075	0.074	0.076	0.082	0.075	0.135	0.265
	N	36	36	36	36	36	36	36	36	36	36	36

Source: Author calculation

Table 4. Correlation matrix among selected variables

	U_P_A	A_C	BV	L_Day	Size	W_P	W_L	T_S	Vol	Int	Ex	L_R	R_A
U-P-A	1
A_C	−0.463***	1
BV	0.735**	−0.672***	1
L_Day	−0.371	−0.385	−0.113***	1
Size	−0.437***	0.352	−0.615***	−0.485**	1
W_P	0.049	0.913***	−0.234	0.158***	0.361***	1
W_L	−0.061	−0.681	0.953**	−0.851**	−0.428***	−0.681	1
T_S	−0.692	0.047***	−0.527***	0.329**	−0.571**	0.402**	−0.637	1
Vol	0.232	−0.486	0.263**	−0.481**	0.057**	−0.638***	0.073**	−0.861***	1
Int	−0.683***	0.174**	0.073**	0.025***	0.046**	−0.042	−0.052***	−0.047***	0.681***	1
Ex	0.041**	−0.532	0.624***	−0.381**	−0.557***	−0.671**	0.411***	−0.746***	0.104**	0.068**	1
L_R	−0.523	0.058**	0.034	0.482**	−0.231**	0.395**	−0.592	−0.073	−0.053	−0.951**	0.420	1
R_A	−0.983**	−0.482**	−0.451**	−0.491***	0.095***	0.781	0.072**	0.057***	−0.411**	−0.537	−0.560	0.371***	1

Note: The table explains the correlation of variables used.

* Significance at the 1% level.

** Statistical significance at the 5% level.

*** Statistical significance at the 10% level.

Table 5. Results accounting conservation and IPO under-pricing (2000–2020)

Variables	Predictions Signs	UP (SMABR)	UP (MBRD)
Intercept		2.385*** (4.681)	−0.47 ** (−0.638)
Cons_AC	-	−0.547 (−1.573)	−4.759*** (−0.585)
B_V	?	0.619** (1.305)	−0.481 (2.485)
L_Day	+	0.481 (0.004)	−2.582** (−0.371)
Size	+	0.520*** (0.572)	0.563 (0.682)
W_P	-	−0.683 (0.462)	0.793 (−0.930)
W_L	-	−0.863** (−0.1.738)	0.429** (1.637)
T_S	-	2.413*** (0.382)	1.527*** (0.471)
Vol	+	−2.280 (−0.218)	1.462 (0.627)
Int	?	0.003 (0.021)	0.075 (−0.481)
Ex	+	−3.581** (0.491)	0.948*** (0.174)
L_R	-	−1.482 (2.418)	0.581 (1.374)
R_A	-	−2.415 (1.429)	−3.638 (1.382)
N Observation		527	527
R^2		0.692	0.742
Adj.R^2		0.217	0.136
F-stat		9.534	9.847

Note: Table information the cross-sectional studies for the impact of accounting convention (conservatism) on IPO under-ricing from equation no 3. The meaning of variables is described in Table 1.

* Statistical significance at the 1% level.

** Statistical significance at the 5% level.

*** Statistical significance at the 10% level.

Table 6. Result for asymmetry groups difference between low and high information data

Proxy Variables	Asymmetry data at a high level			Asymmetry data at a low level			Mean-variance value
	N	Mean	σ^2	N	Mean	σ^2	Variance	T-test
Firm Growth	273	0.517	0.427	273	0.690	0.604	0.0407	11.065***
Firm Size	273	1.282	0.972	273	0.528	1.417	0.7802	2.904***
Firm Age	273	0.936e+02	3.075	273	0.697e+14	1.580e+42	−2.7030	−8.792***
Firm C_G	273	−0.319	0.619	273	1.038	0.849	−1.0486	−4.037***
Firm_L_R	273	−0.172	0.247	273	0.306	1.064	−0.7893	−3.692***

Source: Author calculation

Table 7. Output of reverse causality test using Heckman correction model:—estimating regression models which suffer from sample selection bias

first-stage probit regression panel -A		second-stage regression panel -B
		MBRD
Intercept	−1.032** (−1.042)	Intercept	4.002*** (5.023)
L_R	−0.271* (−0.017)	Cons_AC	−2.473 (−1.013)
R_A	−3.324*** (−2.306)	Book value	−0.084*** (−0.019)
Firm Growth	0.052 (0.031)	L_Day	−0.002 (−1.910)
Firm Size	0.921*** (1.273)	Size	−0.992 (−5.036)
I_D_All_D	−0.319 (−0.061)	W_P	0.185** (0.962)
Size_B_D	0.012* (1.352)	W_L	−0.892 (−1.047)
N	527	T_S	−1.047 (−2.347)
Pseudo -R^2	0.036	Vol	0.056* (2.018)
		Int	−0.006*** (−1.902)
		EX	−0.341*** (−1.028)
		L_R	−0.428(−0.045)
		R_A	0.537*** (0.614)
		N	527

Source: Author calculation * Statistical significance at the 1% level. ** Statistical significance at the 5% level. *** Statistical significance at the 10% level.

Table 8. Regression analysis for robustness tests

Variables	Model 1		Model2		Model 3	Model 4	Model 5	Model6
	2000–2005	2006–2010	2011–2015	2016–2020
Intercept	2.657*** (2.50)	1.093** (3.04)	2.351** (1.41)	0.849*** (4.07)	3.219*** (4.28)	4.205*** (2.49)	1.048*** (1.72)	2.495*** (5.31)
Cons_TAC	−1.582** (−0.385)	−0.304 (−1.105)	−0.381 (−2.602)	1.528 (0.587)		−2.019 (−0.401)	−2.339 (−1.496)	−0.969 (−2.629)
C_score	−0.425 (−0.313)	−0.528** (−0.417)			−2.965** (−0.081)
B_V			0.603** (1.041)	−0.728*** (−4.194)	0.581 (1.810)	0.994* (1.738)	0.218** (1.162)	0.318* (1.937)
L_Day	0.005*** (0.012)	−0.021 (−0.510)	0.071*** (1.590)	−0.001 (−0.361)	0.028* (0.053)	0.004** (0.034)	0.001 (0.041)	0.007** (0.072)
Size	−0.231 (−2.642)	−0.645** (−5.274)	−0.835 (−6.748)	−0.747* (−2.573)	−0.703 (−7.746)	−0.691 (−8.058)	−0.883** (−5.462)	−0.784 (−6.573)
W_P	0.445 (0.602)	0.293 (1.405)	0.546*** (0.739)	0.825 (2.448)	0.226** (1.132)	0.547* (1.436)	0.648* (3.537)	0.738 (1.627)
W_L	−0.320*** (−0.215)	0.619 (0.508)	0.394 (0.283)	0.148* (0.037)	−0.329 (−0.216)	−0.521 (−0.410)	−0.634 (−0.523)	1.325*** (2.215)
T_S	−1.637 (−0.526)	0.364*** (0.253)	0.081*** (0.172)	0.862 (0.751)	−2.471*** (−1.360)	−3.597** (−2.472)	−0.462** (−0.327)	−0.057 (−0.146)
Vol	−0.041*** (−0.130)	0.025* (0.114)	−0.002 (−0.091)	0.031*** (0.012)	0.002 (2.036)	0.009 (2.402)	0.004 (3.047)	0.008** (3.017)
Int	−0.021 (−0.081)	−0.413 (−2.302)	0.024** (0.821)	−1.803 (−3.261)	−0.127** (−4.638)	−0.893** (−2.746)	−0.826** (−3.648)	−0.639 (−2.517)
Ex	−0.034** (−0.038)	−0.519 (−1.062)	−1.008 (−0.314)	−1.490 (−0.548)	−0.325 (−2.036)	−2.037 (−0.481)	−0.502 (−1.089)	−0.562 (−1.845)
R_A	−1.683* (−0.572)	2.384** (1.273)	−2.091* (−3.190)	−3.012*** (−2.003)	−1.675** (−2.563)	−3.759* (−2.472)	−4.384*** (−2.583)	−1.399 (−0.428)
L_R						−0.043* (−1.094)
SD							0.032* (0.003)
OIA								−2.056** (−1840)
N	527	527	527	527	527	527	527	527
R^2	0.402	0.623	0.733	0.415	0.304	0.362	0.372	0.704
Adj.R^2	0.325	0.534	0.283	0.275	0.159	0.327	0.127	0.491
F-stat	5.708	6.302	4.006	7.581	5.671	8.596	8.472	9.339

Source: Author calculation.

* Statistical significance at the 1% level.

** Statistical significance at the 5% level.

*** Statistical significance at the 10% level.