Influence of internal corporate governance mechanisms on use of IPO proceeds by Indian firms

Abstract

The utilization of IPO proceeds represents a specific commitment to shareholders, wherein the firm’s obligation to honour this commitment begins with the IPO event and continues until the proceeds are fully deployed. This obligation when dealt with in accordance with the letter and spirit of the relevant laws and regulations could provide signals to the shareholders as well as prospective investors about the efficiency levels of such firms. Consequently, in this paper, we examine the influence of internal corporate governance mechanisms on the utilization of public issue funds post IPOs by Indian firms. We examine 218 Indian IPOs that occurred from 2007 to 2010, their annual reports and disclosures to trace the utilization of these IPO funds from 2007 to 2013, the deviations in the utilization of IPO funds, the manner of dealing with these deviations, and consequently, the implications for corporate governance. Our findings indicate that the institutional investors reduce the deviation in the utilization of IPO funds whereas family management enhances the extant of deviation in the utilization of IPO proceeds.