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Initial public offering (IPO) underpricing in Malaysian settings

Author

Listed:
  • Edward Wong Sek Khin

    (Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia)

  • Ricky Wong W B

    (Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia)

  • Lee Sue Ting

    (Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia)

Abstract

Empirical debate on Initial public offering (IPO) underpricing has never laid to rest. Motivated by the IPO underpricing phenomenon across various market, this paper examines the anomalous market behaviors of IPO in an emerging market setting such as Malaysia. The primary purpose of this paper is to analyze the existence and magnitude of the underpricing phenomenon and post listing performance of IPOs listed in Bursa Malaysia from 2008 to 2016. Moreover, this study aims to provide an insight primarily into the relationship between IPO initial and long-term stock performance and the four main determinants influencing underpricing, namely IPO size, market volatility, underwriter status and the reciprocal of IPO price. By analyzing a sample of 313 IPOs, the average market adjusted initial return is 9.4%. The regression-based analysis indicates positive relationship between underpricing and the explanatory variables, namely IPO size, market volatility, underwriter status and the reciprocal of IPO price. In addition, the findings of the present study lend support to the evidence of a fads hypothesis as the sample IPO was found to underperform the market over a 36-month period after listing and a univariate regression analysis further reveals that there is a negative relationship between initial market adjusted returns and returns over the 36-month period.

Suggested Citation

  • Edward Wong Sek Khin & Ricky Wong W B & Lee Sue Ting, 2017. "Initial public offering (IPO) underpricing in Malaysian settings," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 5(2), pages 14-25, April.
    • Handle: RePEc:lrc:lareco:v:5:y:2017:i:2:p:14-25
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    References listed on IDEAS

    as
    1. Amiyatosh K. Purnanandam, 2004. "Are IPOs Really Underpriced?," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 811-848.
    2. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
    3. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
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    Cited by:

    1. Nischay Arora & Balwinder Singh, 2024. "Do Prestigious Underwriters Shape the Performance of SME IPOs in India?," Global Business Review, International Management Institute, vol. 25(3), pages 632-655, June.
    2. Wang, Zhuqing & Wang, Xinyu & Xu, Yan & Cheng, Qiuying, 2022. "Are green IPOs priced differently? Evidence from China," Research in International Business and Finance, Elsevier, vol. 61(C).
    3. Rathnayake, Dilesha Nawadali & Louembé, Pierre Axel & Kassi, Diby François & Sun, Gang & Ning, Ding, 2019. "Are IPOs underpriced or overpriced? Evidence from an emerging market," Research in International Business and Finance, Elsevier, vol. 50(C), pages 171-190.

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