ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Do Stock Markets Allocate Resources Efficiently? An Examination of Initial Public Offerings

This paper examines the pricing of Initial Public Offerings in relation to their future operating performance and risk. ipo firms have lower profitability but receive higher valuation than their industry peers on the expectation that their earnings will grow in the future. The expectation of superior growth is not realised in the post-issue period. It thus appears that low profitability firms conduct ipos when investors are excessively optimistic about their growth potential. The paper concludes that stock markets in India have suffered from excessive optimism and poor evaluation.

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