Green Shoe Option in India

RPS/06/2012

STUDENT RESEARCH PROJECT Green Shoe Options in India
Prepared by
Naveen Alle Batch 2012, Masters Programme in Management Studies Jamnalal Bajaj Institute of Management Studies (JBIMS) University of Mumbai Mumbai

Supervised by
Balkrishna Parab Assistant Professor Jamnalal Bajaj Institute of Management Studies (JBIMS) University of Mumbai Mumbai

March 2012

Student Research Project Green Shoe Options in India
Prepared by Naveen Alle1 March 2012

Abstract

A green shoe option (GSO) provides the option of allotting equity shares in excess of the equity shares offered in the public issue as a post-listing price stabilising mechanism. This study examines whether companies need to include GSOs in their initial public offerings (IPOs), and explores the reasons for the indifference on the part of issuer companies and merchant banks in India towards GSOs. The aftermarket price performance of companies that included GSOs in their IPOs is analysed; however, the results of this analysis do not lead to any generalization due to the small number of companies that opted for GSO. Various suggestions such as making green shoe options mandatory, controlling occurrences of flipping by qualified institutional buyers, and so on are proposed by the author.

1 Naveen Alle is a final-year student of the Masters Programme in Management Studies (MMS) at the Jamnalal Bajaj Institute of Management Studies. The author acknowledges the opportunity as well as the research grant provided by National Stock Exchange of India Limited and also acknowledges the constant support and guidance provided by Prof. Balkrishna Parab for the preparation of the paper. The student and the faculty acknowledge the valuable inputs of the following persons during the preparation of this paper: Nirmal Mohanty (NSE); Sajeev Kumar, Corporate Banking Division, Indian Bank; D. Venu, Vice President (Capital Markets Group), SBI Capital Markets Limited; Kishore Iyer, Assistant Vice

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