Impact of Underwriters’ Reputation on the Initial Return and Post-issue Stock Performance of SME IPOs in INDIA

Small and medium enterprises (SMEs) are crucial for economic development, contributing significantly to employment, innovation, and overall economic stability. However, SMEs face challenges such as asymmetric information and ex-ante uncertainty due to their relatively short operational histories, and also, SME exchanges have relatively fewer regulations and listing requirements as compared to mainboard exchanges. By leveraging various signals, such as the reputation of underwriters, these issues can be mitigated during the IPO process. This study aims to explore the signalling role of prominent underwriters and their effects on initial returns and post-issue stock performance of IPOs in India. This study includes the data of 298 IPOs of SME firms listed on the BSE SME platform and NSE EMERGE between April 2012 and March 2020, which were collected from CMIE Prowess. The signalling function of underwriters was tested using multiple regression analysis. The result shows that Underwriter reputation (UWR) positively affects underpricing, but in the long term, it does not have any impact on post-issue stock performance of an IPO Firm.