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This paper investigates the efficacy of IPO grading as certification. We find that subscription rate varies across grades (i.e., grades = 1, 2, 3, 4, and 5). Using a dataset of 116 IPOs issued during 2007-2011, we find higher graded IPOs are less underpriced, and invite more subscription across different investor group. However, grading has little impact on post listing price volatility. Hence, the role of IPO grading in providing an objective assessment of the quality of the issue from the viewpoint of controlling after market volatility is doubtful. Further, distribution of penultimate subscription rate of different investor groups across grades suggests that non-institutional retail investors are poor in reading different grade values. This study contributes to the growing body of certification hypothesis for IPOs. This study provides a new direction to the study of underpricing, subscription rate and volatility for the Indian IPOs when grading of IPOs was made binding.
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