An Assessment of the Performance of Initial Public Offering (IPOs) in Malaysia

Abstract

Initial Public Offerings (IPOs) are largely underpriced in short term. This underpricing phenomenon has been well recognized in nearly all the stock markets in the world. Recent evidence suggests that underpricing is higher in a buoyant stock market. Most studies in the field of IPO have only focused on developed countries. Little is known about underpricing and it is not clear what factors influencing underpricing in developing country. Unlike in developed markets, this study analyzed the existence of underpricing issue of Malaysian IPOs listed in Bursa Malaysia from 2000 to 2008. This study then examines the impact of different use types of proceeds on IPO underpricing. In particular, four main influencing factors of underpricing including IPO size, market volatility, underwriter status and reciprocal of IPO price are investigated. A sample of 102 IPOs was selected and analyzed. Results show that the average market adjusted initial return is 9.4%. A regression analysis was conducted which resulted in positive impact of IPO size, market volatility, underwriter status and reciprocal of IPO price on underpricing. Therefore, this study provides a new perspective to analyze the underpricing problem by focusing on the multiple elements.

Keywords: IPO, underpricing, underwriter, Malaysia