IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v21y2018i04ns0219091518500236.html
   My bibliography  Save this article

The Impact of Global Financial Crisis on IPO Underpricing in Malaysian Stock Market

Author

Listed:
  • Hon-Wei Leow

    (University of Malaya, Faculty of Economics and Administration, Lembah Pantai, 50603 Kuala Lumpur, Malaysia)

  • Wee-Yeap Lau

    (University of Malaya, Faculty of Economics and Administration, Lembah Pantai, 50603 Kuala Lumpur, Malaysia)

Abstract

This study examines the impact of the Global Financial Crisis (GFC) on Initial Public Offering (IPO) underpricing in the context of an emerging market from January 2006 to December 2011. Models consist of hierarchical and dummy variable regressions have been evaluated. Our results show, firstly, by comparison between the pre-GFC, GFC and post-GFC periods, it can be observed that IPOs initial returns (offer-to-close) are generally lower due to the crisis. Secondly, IPO underpricing provides an average of 17–25% of initial returns in the pre-GFC period, 1–3% during GFC period, and 3–7% in the post-GFC period. Thirdly, the financial crisis does not act as a moderator that worsens the relationship between underpricing of IPO and oversubscription ratio. Lastly, this study dispels the notion that investors should totally shun IPO during crisis period as there are still positive initial returns among the new issues. To the authors’ knowledge, this is the first study on the impact of the GFC on IPO underpricing in Malaysia.

Suggested Citation

  • Hon-Wei Leow & Wee-Yeap Lau, 2018. "The Impact of Global Financial Crisis on IPO Underpricing in Malaysian Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-17, December.
    • Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500236
    DOI: 10.1142/S0219091518500236
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091518500236
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091518500236?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    2. Jamel Saadaoui, 2015. "Does financial openness explain the increase of global imbalances before the crisis of 2008?," International Economics, CEPII research center, issue 143, pages 23-35.
    3. Roger G. Ibbotson & Jody L. Sindelar & Jay R Ritter, 1994. "The Market'S Problems With The Pricing Of Initial Public Offerings," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(1), pages 66-74, March.
    4. Fratzscher, Marcel & Chudik, Alexander, 2010. "Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model," CEPR Discussion Papers 8093, C.E.P.R. Discussion Papers.
    5. David Chambers & Elroy Dimson, 2009. "IPO Underpricing over the Very Long Run," Journal of Finance, American Finance Association, vol. 64(3), pages 1407-1443, June.
    6. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1995. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 139-140, May.
    7. Michelle Lowry & Micah S. Officer & G. William Schwert, 2010. "The Variability of IPO Initial Returns," Journal of Finance, American Finance Association, vol. 65(2), pages 425-465, April.
    8. Ritter, Jay R, 1984. "The "Hot Issue" Market of 1980," The Journal of Business, University of Chicago Press, vol. 57(2), pages 215-240, April.
    9. McDonald, J G & Fisher, A K, 1972. "New Issue Stock Price Behavior," Journal of Finance, American Finance Association, vol. 27(1), pages 97-102, March.
    10. Fei Gao & Mazhar A. Siddiqi, 2012. "The Rationale for IPO Lockup Agreements: Agency or Signaling?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(03), pages 1-18.
    11. Billio, Monica & Caporin, Massimiliano, 2010. "Market linkages, variance spillovers, and correlation stability: Empirical evidence of financial contagion," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2443-2458, November.
    12. Forseth, Ulla & Røyrvik, Emil A. & Clegg, Stewart, 2015. "Brave new world? The global financial crisis’ impact on Scandinavian banking’s sales rhetoric and practices," Scandinavian Journal of Management, Elsevier, vol. 31(4), pages 471-479.
    13. Syllignakis, Manolis N. & Kouretas, Georgios P., 2011. "Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 717-732, October.
    14. M. Monica Hussein & Zhong-Guo Zhou, 2014. "The Initial Return and Its Conditional Return Volatility: Evidence from the Chinese IPO Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-32.
    15. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August.
    16. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
    17. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
    18. Kerins, Frank & Kutsuna, Kenji & Smith, Richard, 2007. "Why are IPOs underpriced? Evidence from Japan's hybrid auction-method offerings," Journal of Financial Economics, Elsevier, vol. 85(3), pages 637-666, September.
    19. Bartram, Söhnke M. & Bodnar, Gordon M., 2009. "No place to hide: The global crisis in equity markets in 2008/2009," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1246-1292, December.
    20. Wang, Clement K. & Wang, Kangmao & Lu, Qing, 2003. "Effects of venture capitalists' participation in listed companies," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 2015-2034, October.
    21. Gendron, Yves & Smith-Lacroix, Jean-Hubert, 2015. "The global financial crisis: Essay on the possibility of substantive change in the discipline of finance," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 30(C), pages 83-101.
    22. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    23. Jamel Saadaoui, 2015. "Does financial openness explain the increase of global imbalances before the crisis of 2008?," Post-Print hal-01397611, HAL.
    24. Byung-Ju Kim & Richard J. Kish & Geraldo M. Vasconcellos, 2004. "Cumulative Returns from the Korean IPO Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 43-75.
    25. Dooley, Michael & Hutchison, Michael, 2009. "Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1331-1349, December.
    26. Terence Tai-Leung Chong & Shuo Yuan & Isabel Kit-Ming Yan, 2010. "An Examination of the Underpricing of H-Share IPOs in Hong Kong," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 13(04), pages 559-582.
    27. Othman Yong & Zaidi Isa, 2003. "Initial performance of new issues of shares in Malaysia," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 919-930.
    28. Yong, Othman, 2007. "A review of IPO research in Asia: What's next?," Pacific-Basin Finance Journal, Elsevier, vol. 15(3), pages 253-275, June.
    29. How, Janice & Jelic, Ranko & Saadouni, Brahim & Verhoeven, Peter, 2007. "Share allocations and performance of KLSE second board IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 15(3), pages 292-314, June.
    30. Qile Tan & William Dimovski & Victor Fang, 2015. "The Underpricing of Infrastructure IPOs: Evidence from China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-31, December.
    31. Kim, Kenneth A. & Kitsabunnarat, Pattanaporn & Nofsinger, John R., 2004. "Ownership and operating performance in an emerging market: evidence from Thai IPO firms," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 355-381, June.
    32. Krishnamurti, Chandrasekhar & Thong, Tiong Yang, 2008. "Lockup expiration, insider selling and bid-ask spreads," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 230-244.
    33. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    34. Bartram, Söhnke M. & Bodnar, Gordon M., 2009. "No Place To Hide: The Global Crisis in Equity Markets in 2008/09," MPRA Paper 15955, University Library of Munich, Germany.
    35. Carey, Peter & Steen, Adam, 2006. "Changing conditions in the Hong Kong new issues market," Pacific-Basin Finance Journal, Elsevier, vol. 14(5), pages 484-500, November.
    36. Byung-Ju Kim & Richard J. Kish & Geraldo M. Vasconcellos, 2002. "The Korean IPO Market: Initial Returns," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 219-253.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pantisa Pavabutr, 2021. "White Knights or Machiavellians? Understanding the motivation for reverse takeovers in Singapore and Thailand," PIER Discussion Papers 153, Puey Ungphakorn Institute for Economic Research.
    2. Pantisa Pavabutr, 2020. "White Knights or Machiavellians? Understanding the motivation for reverse takeovers in Singapore and Thailand," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 983-1001, October.
    3. Ahmad Abu-Alkheil & Walayet A. Khan & Bhavik Parikh, 2020. "Risk-Reward Trade-Off and Volatility Performance of Islamic Versus Conventional Stock Indices: Global Evidence," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-29, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agathee, Ushad Subadar & Sannassee, Raja Vinesh & Brooks, Chris, 2012. "The underpricing of IPOs on the Stock Exchange of Mauritius," Research in International Business and Finance, Elsevier, vol. 26(2), pages 281-303.
    2. Giannopoulos, George & Degiannakis, Stavros & Holt, Andrew & Pongpoonsuksri, Teerapon, 2018. "The Impact of the 2007 Global Financial Crisis on IPO Performance in Asian-Pacific Emerging Markets," MPRA Paper 96269, University Library of Munich, Germany.
    3. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "IPO Pricing and the Relative Importance of Investor Sentiment: Evidence from Germany," Discussion Papers 26, University of Bamberg, Chair of Finance.
    4. Kotkatvuori-Örnberg, Juha & Nikkinen, Jussi & Äijö, Janne, 2013. "Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 70-78.
    5. Yibiao Chen & Steven S. Wang & Wilson H. S. Tong & Hui Zhu, 2017. "Economic freedom and IPO underpricing," Frontiers of Business Research in China, Springer, vol. 11(1), pages 1-22, December.
    6. Grammenos, Costas Th. & Papapostolou, Nikos C., 2012. "US shipping initial public offerings: Do prospectus and market information matter?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(1), pages 276-295.
    7. Klova, Valeriia, 2017. "IPO underpricing: What about the shipping sector?," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 95-115.
    8. Qi Deng & Zhong-guo Zhou, 2016. "The pricing of first day opening price returns for ChiNext IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 249-271, August.
    9. Chang, Chih-Hsiang, 2011. "IPO underpricing: A social comparison perspective," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 367-375, June.
    10. Attiya Yasmin Javid & Henna Malik, 2016. "Performance and capital structure of IPOs in Pakistan from 2000 to 2015," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 2(1), pages 1-19, December.
    11. Hahl, Teemu & Vähämaa, Sami & Äijö, Janne, 2014. "Value versus growth in IPOs: New evidence from Finland," Research in International Business and Finance, Elsevier, vol. 31(C), pages 17-31.
    12. Chen Su, 2018. "The efficiency of IPO issuing mechanisms and market conditions: evidence in China," Review of Quantitative Finance and Accounting, Springer, vol. 51(2), pages 461-495, August.
    13. Sheena Chhabra & Ravi Kiran, 2022. "Impact of information on winners' curse and long run performance of initial public offerings," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 975-992, January.
    14. Santos, Francisco, 2017. "IPO market timing with uncertain aftermarket retail demand," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 247-266.
    15. Subadar Agathee, Ushad & Brooks, Chris & Sannassee, Raja Vinesh, 2012. "Hot and cold IPO markets: The case of the Stock Exchange of Mauritius," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 168-192.
    16. Catherine M. Daily & S. Trevis Certo & Dan R. Dalton & Rungpen Roengpitya, 2003. "IPO Underpricing: A Meta–Analysis and Research Synthesis," Entrepreneurship Theory and Practice, , vol. 27(3), pages 271-295, July.
    17. Guillermo Yañez & Carlos Maquieira, 2009. "Rendimiento de Ofertas Públicas Iniciales de Acciones en Chile: Evidencia Empírica entre 1994 y 2007," Serie de Documentos de Trabajo 02, Superintendencia de Valores y Seguros.
    18. Shaio Yan Huang & Chao-Hsiung Lee & Lee-Hsien Pan & Bich Hanh Nguyen Thi, 2016. "IPO Initial Excess Return in an Emerging Market: Evidence from Vietnam’s Stock Exchanges," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-23, June.
    19. Yong, Othman, 2007. "A review of IPO research in Asia: What's next?," Pacific-Basin Finance Journal, Elsevier, vol. 15(3), pages 253-275, June.
    20. Cho, Jaemin & Lee, Jaeho, 2013. "The venture capital certification role in R&D: Evidence from IPO underpricing in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 83-108.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500236. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.