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Does prospectus information matter in IPO pricing?

Author

Listed:
  • Rasidah Mohd-Rashid
  • Mansur Masih
  • Ruzita Abdul-Rahim
  • Norliza Che-Yahya

Abstract

Purpose - The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price. Design/methodology/approach - This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating toShariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples ofShariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model. Findings - The results tend to provide support for the argument that firms withShariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price. Research limitations/implications - This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which areShariah-compliant. Originality/value - This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for bothShariah-and non-Shariah-compliant IPOs.

Suggested Citation

  • Rasidah Mohd-Rashid & Mansur Masih & Ruzita Abdul-Rahim & Norliza Che-Yahya, 2018. "Does prospectus information matter in IPO pricing?," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 9(4), pages 514-530, July.
  • Handle: RePEc:eme:jiabrp:jiabr-10-2017-0146
    DOI: 10.1108/JIABR-10-2017-0146
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    Citations

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    Cited by:

    1. Deng, Qi & Zheng, Linhong & Peng, Jiaqi & Li, Xu & Zhou, Zhong-guo & Hussein, Monica & Chen, Dingyi & Swartz, Mick, 2024. "The impacts of registration regime implementation on IPO pricing efficiency," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Qi Deng & Linhong Zheng & Jiaqi Peng & Xu Li & Zhong-guo Zhou & Monica Hussein & Dingyi Chen & Mick Swartz, 2023. "The Impacts of Registration Regime Implementation on IPO Pricing Efficiency," Papers 2307.09669, arXiv.org.

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