Initial Public Offerings

R
-A
S A 2 0 12
-A
d
Advanced Research in Scientific Areas 2012
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
Initial public offerings in China and India

Adam Marszk
Faculty of Management and Economics
Gdask University of Technology
Gdask, Poland
amarszk@zie.pg.gda.pl
AbstractRapid economic growth in China and India has
attracted attention of many researchers, focusing on various
social and economic factors underlying the success of these
countries. One of the key components of countrys economy is
financial system which consists of segments such as banking
sector and equity market. The topic of initial public offerings
(IPOs), one of the corporate financing sources, involving raising
funds through equity markets and the role they play in the
economic growth processes (especially in emerging economies),
has not been yet, however, studied in detail. This paper includes
the outline of theoretical arguments concerning the economic
functions of stock markets and IPOs. After describing the
theories, an empirical study concerning IPOs in China and India
from 2008 to 2011 is presented. The findings of the study show
that IPOs had some significant impact on Chinese economy.
Moreover, their value and structure reflected both Chinese
position in global economy and processes within the country. In
India, the role of IPOs for investment funding and stock market
development was low compared with countrys economic
potential.
Initial public offerings, BRIC, Emerging markets, Economic
growth, Equity markets
I.
INTRODUCTION
Initial public offering (IPO) which includes using the stock
exchange to sell the companys shares to public investors is
one of the main equity financing sources. Over the last few
years, its role has increased as a result of limited access to the
bank-related capital sources (mainly bank credits) caused by
the global financial crisis. Despite relatively better
performance, the global IPO market also suffered from the
economic volatility in 2008 it decreased by 60% in both
number of offerings and value of raised funds [1]. However,
BRIC countries (Brazil, Russia, India, China), the rising giants
of global economy, have to a large extent been unaffected by
the global economic turmoil (there was no recession or the
revival was fast) and companies from these countries managed
to raise capital through IPOs. The purpose of this paper is to
present the functions of stock markets and IPOs identified in
theoretical literature and the analysis of the role of IPOs for
two of the worlds biggest economies (according to GDP
calculated using purchasing power parity), also included by
economist in the BRIC group, i.e. China and India.
INTERNATIONAL VIRTUAL CONFERENCE

http://www.arsa-conf.com
II.
ECONOMIC IMPORTANCE OF STOCK MARKETS AND

INITIAL PUBLIC OFFERINGS
As issuance of stocks takes place on one part of capital

markets, i.e. on equity (stock) market, it is necessary to
consider the role of this market for economic growth in order to
analyze the significance of IPOs. With regard to companies
financing structure, equity issues and bank loans are two main
sources of external funds. Through the financial system,
savings of households are transformed into investments of
enterprises. Financial intermediaries, usually banks, take part in
this process by providing credits. Another segment of the
financial system, capital markets enable the transfer of
surpluses from investors to companies offering their securities
(usually bonds and stocks). Equity markets are one element of
capital markets and involve buying and selling equity
securities. They consist of two parts: primary and secondary
markets. In primary markets stocks are sold by issuers to
investors (in form of IPOs or follow-on offerings), whereas in
secondary markets stocks issued are traded by market
participants.
Theoretical links between stock market development and
economic growth may be analyzed from the microeconomic or
macroeconomic perspective. In the first approach, the research
subject is individual companies financing decisions, e.g. the
decision to sell shares to investors and become public instead
of bank borrowing and their impact on firms financial
standings [2]. Most common argument in favor of stock
issuance is minimizing WACC (weighted average cost of
capital) by creating optimal financing structure combining debt
and equity. Costs linked with higher financial leverage (higher
share of debt in total firms capital) that can be partially limited
by issuing stocks are for example costs of financial distress
(costs of possible insolvency due to obligatory debt
repayments) and asymmetric information (investors favor
companies with less leverage as debt financing decreases
access to information available for owners, e.g. stockholders).
From the macroeconomic point of view, equity markets,
apart from mobilizing and transferring savings, have a few
other functions different from other segments of the financial
system [3]. Firstly, they provide a potential exit mechanism for
investors, e.g. private equity funds (for example through IPO)
which leads to increased general entrepreneurial activity.
Secondly, equity markets attract foreign portfolio investments
that can be used to overcome emerging markets capital
deficits. Thirdly, well-developed stock markets influence the
SECTION
3. Economy and Business Economics
- 316 -
R
-A
S A 2 0 12
-A
d
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
term structure of financial investments by encouraging

investors to transfer their funds from short-term assets to longterm capital market. As a result, companies are able to finance
long-term and indivisible projects, often with high risk levels.
As the number of invertors is very high, each of them accepts
only a small portion of the total risk. Last but not least, equity
markets supply various market participants with important
information on particular companies as well as on the condition
of the economy as a whole. Such information is used by
owners of listed firms to evaluate their management and leads
to improved efficiency of listed companies, e.g. when
unsuccessful board of directors is replaced by a new one. For
other entities, stock market data provides various benchmarks
for more efficient valuation of business assets.
In order to fulfill the functions described above, stock
markets need to be well-developed. Although there is no
common agreement among economists concerning the
indicators to be used in order to assess the level of equity
market development, two widely used are market capitalization
(market depth indicator) and total value traded (market depth
and liquidity indicator); usually in relation to GDP. IPOs
influence significantly both stock market aspects and are one of
key factors in the process of equity market development.
Consequently, they have also impact on economic growth.
Market capitalization is a total value of shares issued and
traded on a stock exchange and is calculated as the product of
number of shares outstanding and share prices. It is increased
in two ways: as a result of rising stock prices or due to increase
in the number of shares listed. IPOs are directly linked with the
second form as the final result of stock offering is new shares
listed on a stock exchange.
Second indicator, total value traded is a value of all
transactions on a stock exchange. It is calculated as the product
of share prices and the quantity of shares traded. IPOs have
most impact on this indicator during the issuance when
investors buy stocks from the company thus increasing market
turnover. However, even in longer term, availability of shares
issued by new companies and higher diversity of listed
securities may attract investors seeking stocks with different
profiles.
discrepancies between the four countries were significant, with

China being the global IPO leader and Russia one of the
smaller markets. The differences between two analyzed
countries, i.e. China and India, were also considerable. As
China is global leader not only in the IPO deals field and is one
of the worlds biggest economies with high growth rate, the
IPO market in this country will be analyzed first and in most
detail. Indian market as relatively less developed will be
described second, in section B.
A. China
Analysis concerning Chinese corporations will include
firms from Greater China (i.e. mainland China, Hong Kong and
Taiwan). Chinese domestic stock exchanges located in two
mainland cities, Shanghai and Shenzhen and in Hong Kong are
among the biggest in the world in terms of market
capitalization and trade volume. Access of foreign investors to
the mainland China financial market is limited and the only
exchange with no barriers is the one in Hong Kong.
Apart from the domestic companies, a number of foreign
corporations have decided to choose Chinese stock exchanges
as their listing place in order to gain access to funds from Asian
investors and to very liquid equity market. This trend was
particularly noticeable in 2011 when the biggest IPO on the
Hong Kong Stock Exchange was Italian fashion company
Prada SpA. Capital raised in this issue amounted to 2.5 billion
USD. These statistics do not include the worlds biggest IPO in
2011 by commodity trading and mining company Glencore
International (worth 10 billion USD) based in Switzerland
whose stocks were dual-listed (i.e. issued at the same time on
two stock exchanges) in Hong Kong and London. In previous
years, Chinese stock exchanges were chosen mainly by
domestic issuers, with the noteworthy exception of one
company from another BRIC country Russian aluminum
producer Rusal raised 2.2 billion USD on Hong Kong Stock
Exchange and Euronext in 2010.
Presented arguments show the theoretical role played by

IPOs in improving the level of stock market development and
increasing activity in real sector of economy. Accordingly, in
the next sections of this paper, there will be described IPO
markets in China and India and their meaning for these
economies.
III.
KEY TRENDS IN CHINESE AND INDIAN INITIAL PUBLIC

OFFERINGS MARKETS AND THEIR ECONOMIC ROLE
IPO activity in all four BRIC countries has been growing

steadily from the beginning of this century. Whereas in 2002
their share in global IPOs was 2.6%, in pre-crisis year 2007
they accounted for 40% (119 billion USD) of capital raised
through IPOs worldwide [1]. Since 2008, their share has been
stable, amounting to between 40% and 50% by capital raised.
According to the 2011 data, the BRIC companies were
responsible for nearly 50% of the global IPO activity in value
terms and 37% by number of deals [4]. Nevertheless, the

Figure 1. Capital raised (in USD billion) and number of IPO deals in Greater
China over the 2008-2011 period. (source: [1],[4])
SECTION
- 317 -
R
-A
S A 2 0 12
-A
d
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
Despite the sharp decline in the Chinese IPO market

activity in 2008 compared to the pre-crisis year 2007, domestic
companies have promptly returned to this source of capital and
over the next two years (2009-2010) both the number of deals
and the amount of funds raised dynamically increased,
reaching the record high value of 130 billion USD in shares
issued by 440 companies (figure 1). The fall in 2011 was to a
large extent a consequence of economic problems (mostly
linked with high sovereign debt levels) in developed countries,
particularly United States and euro zone (Greece, Portugal,
Italy, Spain) which caused high uncertainty among investors.
On the IPO market supply side, many Chinese firms have
reformulated their strategies and postponed offerings or opted
for other financing sources because of the economic slowdown
in Western countries and diminishing demand for their
products. The value of capital raised (68 billion USD) and the
number of deals (361) in Greater China were, however, still
very high (second largest in the history).
Chinese and foreign issuers preferred stock exchanges in
Hong Kong and Shenzhen, the one in Shanghai attracted much
less interest. Between 2008 and 2011, 235 companies issued
stocks worth 109.4 billion USD on the stock exchange in Hong
Kong [4]. Even more decided to be listed on the exchange in
Shenzhen; total number of IPOs over the analyzed period was
723 and the capital raised 85.4 billion USD. These numbers
indicate that the biggest mainland China stock exchange was
chosen mainly by smaller issuers, whereas blue-chip
companies (including foreign enterprises) focused on the
market in Hong Kong. Despite the smaller activity on the
world IPO market in 2011, by the end of this year Hong Kong
was at the centre of attention of many potential issuers, some of
whom listed their stocks at the beginning of 2012. Smaller
activity on the Shanghai stock exchange was partially due to
the decision of financial supervision authority to withhold IPO
deals for 9 months between October 2008 and June 2009
(because of high volatility after the Lehman Brothers
bankruptcy) [5]. Shanghai market is selected by large issuers
able to meet high listing requirements.
As far as the structure of Chinese IPOs is concerned, over
the whole period under consideration (with the exception of
2010), most funds were raised by corporations from the
industrial sector (e.g. in 2011 23.4 billion USD by 156 issuers)
which reflects Chinas position as one of the global
manufacturing leaders. Another crucial factor was Chinese
government economic recovery spending plans with most
funds spent on large infrastructure and transport projects. In
2010 and 2011, the third largest groups in terms of the number
of deals were high technology companies. These statistics
show that Chinese economy gradually transforms from
manufacturing less-advanced goods to more sophisticated
products; high technology companies use the capital raised to
finance research and development expenses. To some extent, it
was also a consequence of new energy policy aimed to increase
the share of alternative energy sources in energy production,
e.g. solar and wind energy, and state subsidies for companies in
these branches [6]. However, in value terms, most capital from
equity issues was raised in 2010 by financial institutions (banks
and insurance companies). The producers of consumer goods,
providers of consumer services or retailers played an

insignificant role in the IPO market, with under 40 transactions

in 2011 (2.7 billion USD) which reflects Chinas still relatively
weak domestic consumption.
Average IPO deal size peaked in 2009 at 324.1 million
USD (compared to 180.4 million USD a year before) and
declined slightly in 2010 to 295.1 million USD [4]. However,
in 2011 the decrease was much more visible average deal
size fell by 41% to 189.3 million USD. This change was a
direct result of the global economic problems mentioned above
but also indicates the growing number of small and medium
enterprises seeking financing sources alternative to bank
credits.
TABLE I.
BIGGEST IPOS IN CHINA OVER THE 2008-2011 PERIOD.
Year
2008
2009
2009
Issuers name
China Railway
Construction
China State Construction
Engineering
Metallurgical Corp of
China
IPO
value
(billion
USD)
Stock exchange
5.7
Shanghai, Hong Kong
7.3
Shanghai
5.1
Shanghai, Hong Kong
2010
Agricultural Bank of China
22.1
Shanghai, Hong Kong
2010
AIA Group
20.5
Hong Kong
2010
China Everbright Bank
3.2
Shanghai
2011
Sinohydro Group
2.1
Shanghai
2011
Shanghai Pharmaceuticals
Holding
2.1
Hong Kong
Table 1 provides statistics of the biggest IPO deals in China

between 2008 and 2011 (by year). In 2008 and 2009, most
capital was raised during the IPOs of three industrial
companies, first one focusing on transport infrastructure (China
Railway Construction), second on construction (China State
Construction Engineering) and third on metallurgical facilities,
mining and paper production (Metallurgical Corp of China)
[5]. In 2010, Agricultural Bank of China, the last of the main
commercial banks in China not being a public company, was
dual-listed in Shanghai and Hong Kong, raising over 22 billion
USD which is (for the time being) the largest IPO in history
worldwide [7]. Previous record was set in 2006 by another
Chinese commercial bank, Industrial and Commercial Bank of
China (deals value 21.9 billion USD). The third-largest IPO
ever was the listing of AIA Group in 2010 (22.1 billion USD).
Much smaller amount of capital was transferred from investors
to issuers during the IPO of China Everbright Bank (3.2 billion
USD) yet value of the deal was still high. Final year in the
period under consideration, i.e. 2011, brought (as marked
earlier with reference to the average deal size) no big Chinese
IPOs. Two top issues were undertaken by Sinohydro Group
(hydropower corporation) and Shanghai Pharmaceuticals
Holding (manufacturing and distribution of pharmaceuticals).
Data on the biggest IPO deals in China confirm the findings
concerning changing profile of the Chinese economy described
above. While in 2008 and 2009 primary equity market was
dominated by industrial companies, in 2010 the leading role
SECTION
- 318 -
R
-A
S A 2 0 12
-A
d
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
was played by financial institutions which used IPOs to

increase their capital adequacy ratios and finance possible
future foreign expansion. After the listings of all major
financial companies in China, the value of IPOs from this
sector will most likely be much lower in the upcoming years.
In 2011, the issuers of top two IPO deals were companies from
more technologically advanced business sectors than in
previous years, i.e. hydropower and health care which is
another sign of Chinas economic transformation.
Apart from AIA (American International Assurance)
Group, a Hong Kong based insurance company, all other
companies on the list are state-owned enterprises (SOEs),
established and controlled by the Chinese government. IPOs of
such corporations were highest in value, whereas the ones
undertaken by private enterprises were most numerous. IPOs of
these two groups had different aims selling shares of SOEs to
public investors was linked with partial privatization and
financing large domestic investments, while private companies
regarded stock issues as a source of growth capital used to
finance building international competitiveness.
fixed domestic assets) in a given year [8]. According to

statistics calculated for China, even though IPOs were not
among the key capital sources, they accounted for a few
percent of investments value, so they role was not negligible
compared with more widely used alternatives, i.e. mostly bank
loans provided by Chinese state-controlled banks (corporate
bond market is still underdeveloped and of low economic
importance). In 2008 and 2009 ca. 3.6% of private investments
in fixed assets were financed with funds from stock issuance.
In 2010, their share peaked to nearly 10% which was caused by
IPOs of Chinese financial giants. However, in 2011 it fell to
over 2%.
Statistics described above must be analyzed with caution as
it is impossible to examine the exact use of the funds from
IPOs, especially raised by SOEs as they do not publish
extensive financial reports. As a result, it is difficult to check
what amounts of capital were used to finance investment, i.e. to
what extent the main role of stock markets (transferring savings
into investments) was fulfilled. Nevertheless, on the whole
presented data indicate that IPOs had some importance for
countrys investment activity.
Apart from the abovementioned indicators, another useful
one is the share of IPOs in equity market capitalization which
shows the impact of IPOs on market depth (and consequently
on its ability to boost economic growth). For China, its value
was highest in 2010 (2,73%) but in 2011 it also remained on a
high level (2%), which means that IPOs in the period under
consideration constituted a considerable and rather stable
addition to the size of the equity market. Even during the sharp
decline in market capitalization in 2011, the value and number
of IPOs were higher than two years before (figure 1).
Figure 2. Selected Chinese stock market and IPO statistics over the 20082011 period. (all data in percent; source:[8],[10])
Figure 2 shows basic statistics on Chinese equity market

and share of IPOs in investment financing. In spite of the fact
that Chinese economy was to a large degree unaffected by the
global financial crisis, the decline in both stock market
capitalization and value of traded stocks was quite high. Both
indicators fell most in 2011 when market capitalization as a
share of GDP amounted to only 46% (calculation was made
using year-end data; based on year average level, it was about
65%, meaning smaller decline) and total value traded 105%.
Such change was caused by the second phase of economic
crisis in United States and European Union, particularly in euro
zone which had negative effect on investors attitudes toward
more risky markets. However, in the first half of 2012, Chinese
stock market has resurged and it is probable that it will reach or
exceed levels from previous years.
In order to evaluate the role of IPOs in Chinese companies
financing structure, one of the indicators that may be used is
the share of capital raised from IPOs in total value of private
investments (gross outlays in private sector on additions to the

B. India
Next analyzed country is India, the second largest economy
in the BRIC group and also one of the rising leaders of global
economy. India lags behind China in terms of both absolute
and per capita GDP value. However, its growth rate is very
high (more than 8% in 2010 and 2011) and according to some
projections may in future not only surpass China but also
become the worlds biggest economy.
Despite the high number of Indian stock exchanges
(currently 22 operating ones) [9], most companies are listed
and their securities are traded on two main markets: Bombay
Stock Exchange and National Stock Exchange (both are
located in Bombay/Mumbai). Due to the fact that the vast
majority of Indian public companies are dual-listed on both
exchanges, they will be analyzed together. Another important
point is the fact that only a few foreign companies are listed in
India (in contrast with China) so the value of their IPOs in
recent years will be omitted.
During two first analyzed years, value of IPOs in India was
stable (4,5 billion USD by 36 corporations in 2008 and 4.1
billion USD by 20 corporations in 2009). Indian equity market
was to a large degree unaffected by the economic crisis - in
2010, 63 companies raised over 8 billion USD (figure 3). Even
though the number of deals was lower compared with pre-crisis
years 2006 and 2007 (when it was highest in history and
amounted to 106), the value of stocks sold to investors was
SECTION
- 319 -
R
-A
S A 2 0 12
-A
d
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
near the record high level of 9 billion USD (in 2007). Such
high dynamics on the Indian primary equity market (both in
IPOs and follow-on offerings) was mainly a result of
significant number of privatization deals, most of them in
industrial sector. They were a part of governmental program
aimed to gather capital necessary for states infrastructure
investments. Other reasons for strong revival were high capital
inflows from developed economies and rising stock market
indices (investors optimistically evaluated the growth
perspectives of India).
Indian IPO market over the evaluated period was

dominated by energy, industrial and materials (steel, oil, coal,
gas) corporations which raised nearly 12 billion USD in 68
deals [4]. Most of these transactions were linked with the
governmental plans to modernize infrastructure and boost
energy production in order to sustain high growth rate. Apart
from IPOs initiated by the government, other enterprises
undertaking stock issuances were retail and financial
corporations (first place in 2011 with deals worth 606 million
USD), planning to use the funds for expansion projects and
benefit from growing demand from rising Indian middle class.
Average IPO deal size in the period under consideration
India was highest in 2009 (203.4 million USD). In 2010,
average deal value was considerably lower (132.5 million
USD) which indicates that the equity market was accessed by a
large number of smaller issuers (figure 3) and there were fewer
privatization transactions of large SOEs. In 2011, average deal
size fell to an even lower level of 30.7 million USD reflecting
the general decrease in activity and lack of companies interest
in equity financing [4]. Over the whole period, these values
were inferior to China (the differences were, however, much
lower than in previously described aspects).
TABLE II.
Figure 3. Capital raised (in USD billion) and number of IPO deals in India
over the 2008-2011 period. (source: [1],[4])
In 2011, activity on the IPO market declined sharply in

both quantity and value terms (39 deals worth 1.2 billion USD;
lowest value since 2003 when Indian rapid growth period had
begun). The causes of this decline are similar to that in China
above all uncertainty in developed economies. Another
important reason was worsening situation on secondary equity
market (high declines in main stock indices) and signs of
decreasing economic growth rate. In spite of the fact that there
were only 39 deals in 2011, at the beginning of 2012 the
number of Indian companies planning to go public (having
fulfilled preliminary listing procedures) was higher than in
2010 which may indicate that the downturn in 2011 was an
exception from the upward trend. Important role in attracting
companies and investors to the IPO market was played by
Indian government which allowed foreign investors to buy
shares of local companies directly, without obligatory
intermediaries.
It should be noted that the discrepancies between Chinese
and Indian IPO markets are much higher than differences in
their economic potentials. For example, in 2010 Chinese
companies raised 130 billion USD and Indian ones 8 billion
USD. Such high differences can be partially attributed to the
process of privatization of large SOEs in China (enterprises
much bigger than in India) but may also reflect the fact that
Indian corporations generally seek less growth capital or use
other sources than equity financing.

BIGGEST IPOS IN I NDIA OVER THE 2008-2011 PERIOD.

Year
Issuers name
IPO
value
(billion
USD)
2008
Reliance Power
3.0
2009
National Hydroelectric
Power Corp
1.3
2009
Adani Power
0.7
2009
JSW Energy
0.6
2010
Coal India
3.4
2010
Jaypee Infratech
0.5
2010
SKS Microfinance
0.4
2011
L&T Finance Holdings
0.3
According to data on Indias biggest IPO deals outlined in

table 2, most funds were raised during the IPO of Coal India,
worlds largest coal producer which ended the privatization
process of this SOE [7]. IPOs of other corporations from the
list did not enable issuers to gather comparable sums, with the
exception of electric utility giant Reliance Power. Most of the
largest IPOs were undertaken by industrial and energy
companies (some of them owned by state, e.g. Coal India and
National Hydroelectric Power Corp, others having private
owners, e.g. Reliance Power and Jaypee Infratech), whereas
only two retail and financial corporations on the list were SKS
Microfinance and L&T Finance Holdings (2011 leader; two
other IPOs in top three of that years list were stock issues of
Muthoot Finance, a gold loan company and PTC India
Financial Services). Statistics included in table 2 confirm
earlier findings on the main profiles of Indian IPOs, mostly
undertaken by companies operating in industrial sector and, to
SECTION
- 320 -
R
-A
S A 2 0 12
-A
d
nc
AL CO N F E RE
va
in
IR
TU
e d R e s e a rc h
December, 3. - 7. 2012
Sc
ien
t i fi c A re as
a lesser extent, by consumer goods producers and providers of

financial services.
To extend the evaluation of economic significance of
Indian IPOs, one useful tool may be an analysis similar to the
one presented with reference to China, i.e. based on selected
stock market and investment indicators (figure 4). After a
plunge in Indian stock market capitalization in 2008 when it
fell to 53% GDP from 147% in 2007, over the next two years it
has grown to 96% in 2010 (second highest ever). In 2011, the
size and depth of Indian equity market decreased rapidly to a
level only slightly higher than in 2008, i.e. 55%. While the
stock market size was volatile, the trend in liquidity, measured
using total value of shares traded was downward over the
whole period. This means that, despite the increase in
capitalization in 2010, the overall development level of
described market fell (situation similar to Chinese).
IV.
CONCLUSIONS
Even though both countries are included by researchers in

the BRIC group and in recent years achieved similar economic
growth rates, stock markets in China and India differ
substantially in terms of IPO activity. Whereas China has
become the global IPO leader, India lags behind not only most
developed economies (e.g. United States and United Kingdom)
but also some emerging markets, above all another BRIC
country, Brazil.
In China, IPOs are used to raise funds by a variety of
corporations with different business profiles. Statistics show
that even as much as 10% of private investments were financed
with such capital (in 2010; in other years that share was lower
but remained between 2 and 3%). Moreover, IPOs in China
increased the market capitalization thus improving its ability to
fulfill the functions described in section 2.
In India, the meaning of IPOs was much lower in
comparison with the size of countrys economy and equity
market which does not differ significantly from Chinese in
terms of size and liquidity (related to GDP). Only in 2010 the
share of private investments financed by IPOs exceeded 2%,
yet in 2011 it decreased to under 0.5%. Small value of IPOs
compared with the stock market capitalization over the
analyzed period implies no meaningful impact on stock market
development level and shows that its capability to influence the
processes in the whole economy was mainly a result of earlier
listings and transactions on secondary market.
REFERENCES
[1]
Figure 4. Selected Indian stock market and IPO statistics over the 2008-2011
period. (all data in percent; source:[8],[10])
As far as the micro- and macroeconomic role of IPOs is

concerned, their meaning in India was lower than in China.
IPOs accounted for ca. 1-2% of annual private investments
between 2008 and 2010 and for only 0.3% in 2011 (figure 4)
which implies that Indian companies opted for other financing
sources, especially during worsening economic conditions in
2011. Statistics calculated above refer to private investments
and exclude public projects; according to Indian government,
substantial funds from IPOs were to be used to finance public
investments. However, after recalculating the indicators to
account only for public investments, the share of IPOs does not
increase significantly (maximum value around 5% in 2010).
Moreover, in the analyzed period the impact of IPOs on
stock market depth was rather low, ranging from 0.11% (in
relation to stock market capitalization) in 2011 to 0.70% in
2008 which confirms earlier conclusions concerning relatively
lower economic importance of Indian stock market compared
with the one in its neighboring country, China.

Ernst&Young, Global IPO trends report 2009: Shifting landscape: are

you ready?, 2009.
[2] S. Titman, R. Wessels, The determinants of capital structure choice,
The Journal of Finance, vol. 1, pp. 2-4, 1988.
[3] P.L. Rousseau, P. Wachtel, Equity markets and growth: Cross-country
evidence on timing and outcomes, 1980-1995, Journal of Banking and
Finance, vol. 24, pp. 1933-1957, 2000.
[4] Ernst&Young, Global IPO trends report 2012: Prepare early, move fast,
2012.
[5] Ernst&Young, Global IPO trends report 2010, 2010.
[6] S. Li, F. Wang, H. Yin, Chinas renewable energy policy:
Commitments and challenges, Energy Policy, vol. 38, pp. 1872-1878,
2010.
[7] Ernst&Young, Global IPO trends report 2011.
[8] World Bank, World Development Indicators 2012, data retrieved
October 1st, 2012, from World Bank Online Databank.
[9] H.R. Machiraju, The working of stock exchanges in India, New Age
International, New Delhi, 2009.
[10] T. Beck, A. Demirg-Kunt, "Financial institutions and markets across
countries and over time: Data and analysis", World Bank Policy
Research Working Paper, no. 4943, May 2009 (article revised
September 2012, data retrieved October 1 st, 2012, from World Bank
Website).
SECTION
- 321 -

Initial Public Offerings

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Initial Public Offerings

Uploaded by

Copyright:

Available Formats

R

Advanced Research in Scientific Areas 2012