Anticipated and Actual Use of Capital Raised in Malaysian Ipo Market

Wan‐Hussin

2019

Purpose The purpose of this paper is to examine whether the differences in men and women, such as risk aversion in decision making, can influence the amount of capital that the board of directors can allocate for investment opportunities. Design/methodology/approach This study sampled 212 IPOs over the period of 2005–2015 and employed the OLS and the quantile regression techniques to examine the impact of female directors on capital allocation. Findings The results show that women on corporate boards have a positive influence on the amount of capital an IPO company can allocate for investment opportunities. These findings suggest that the investment strategies of women in an emerging financial market, like Malaysia, may differ from women in other financial markets. Practical implications The presence of women on corporate boards plays an important role in board involvement in a company’s strategic decision at the time of the IPO. Therefore, regulators and IPO issuers should pay close attention to the corporate governance structure of a company at the time of an IPO. In addition, investors and other stakeholders of a company may consider women on corporate boards as an important factor in financing and investment decisions. Originality/value Despite several studies that have examined the influence of women on corporate boards on corporate outcomes, globally, the presence of women on corporate boards and their influence on corporate decision-making related to allocation of capital to investment opportunities, have not been fully explored in the IPO literature.

“…1. Finance literature has documented that capital raised can be used for investment, debt repayment and working capital (Badru et al , 2016; Kim and Weisbach, 2008). …”

Section: Notesmentioning

confidence: 99%

Women on corporate boards and allocation of capital raised through IPOs

Wan‐Hussin

2019

“…Similarly, Liu et al (2016) argue that of all the variables on market returns, the disclosure about the intended use of proceeds in the prospectus has the strongest impact and is the most crucial for shaping the movement of market prices. This type of disclosure reveals the intention of pre-IPO executives on the amount of capital raised during an IPO sale (Badru et al , 2016, 2019; Certo et al , 2010) and its subsequent effects on initial returns (Amor and Kooli, 2017; Leone et al , 2007; Daily et al , 2003; Wyatt, 2014). Extant literature suggests that the primary motive for an IPO is to enable companies to generate a large amount of capital for investment and growth purposes (Badru et al , 2017, 2019; Chemmanur and Fulghieri, 1999; Jin et al , 2017; Kim and Weisbach, 2008; Lowry et al , 2017; McGuinness, 2019; Ritter and Welch, 2002; Subrahmanyam and Titman, 1999), whereas other non-investment or growth purposes are debt repayment and working capital (Pagano et al , 1998).…”

Section: Introductionmentioning

confidence: 99%

“…For example, studies in the USA have considered specificity in disclosure of intended use (s) of IPO proceeds by recognising high total amount of dollar allocation as specific use. Similarly, in Australia, some of the classifications of intended use (s) of IPO proceeds are not visible in the context of signalling company assets as very few companies use the proceeds for research and development (R&D), exploration and acquisitions (Badru et al , 2016). In addition, the study by Abdul Rahim and Che-Embi (2013), which is the only study that uses a sample of Malaysian IPOs, defines intended use of proceeds for growth motive as the addition of working capital, capital expenditure (CAPEX) and R&D. However, this definition sounds ambiguous because prior studies (Andriansyah and Messinis, 2016; Leone et al , 2007; Wyatt, 2014) have defined growth opportunities as CAPEX, expansion and R&D. Therefore, this study uses the three most common classifications of intended use of IPO proceeds to explain the IPO’s positive initial returns phenomenon in the Malaysian IPO market.…”

Section: Introductionmentioning

confidence: 99%

Intended use of IPO proceeds and initial returns

2020

JFRA

Purpose This study aims to investigate the effects of the intended use of initial public offerings (IPO) proceeds that is disclosed in the prospectus on IPO initial returns. Design/methodology/approach A sample of IPOs listed on Bursa Malaysia from 2005 to 2015 is used. The intended use of IPO proceeds is categorised into three uses, namely, growth opportunities, debt repayment and working capital. In addition to ordinary least squares regression, the study applies a more sophisticated and robust approach using the quantile regression technique. Findings The results show that the intended use of IPO proceeds for growth opportunities and working capital is positively associated with IPO initial returns, whereas debt repayment is negatively associated with IPO initial returns. When the intended use of IPO proceeds for growth opportunities is further expanded into capital expenditure (CAPEX) and research and development (R&D), the intended use of IPO proceeds for CAPEX is positively associated with IPO initial returns, whereas R&D is negatively associated with IPO initial returns. Research limitations/implications These findings suggest that intended use of IPO proceeds provides useful information about IPO initial returns and investors can use this information as guidance to make informed decisions. In addition, regulatory authorities should pay close attention to the amount allocated to each intended use of IPO proceeds as this may play a critical role in the success of a company and the economy. Originality/value This study gives new empirical evidence on the desire and motivations of IPO and the usefulness of designated use of IPO proceeds disclosed in the prospectus in explaining IPO initial returns.

“…Initial public offering (IPO) is the most significant event in the lifecycle of a company, and the most common mechanism for raising non-interest bearing capital in the capital market. Capital raised through an IPO in most cases is used for pursuing growth opportunities, among others (see Badru et al, 2016Badru et al, , 2019Kim and Weisbach, 2008). However, one of the greatest puzzles created by this event is the huge initial returns (IR) that occur on the first trading day, popularly referred to as IPO underpricing [1].…”

Section: Introductionmentioning

confidence: 99%

Signalling IPO quality through female directors

Wan‐Hussin

2019

IJMF

Purpose The purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal of IPO quality. Design/methodology/approach A sample of 220 Malaysian IPOs over the period of 2005–2015 was used. This study employed the mean regression technique (ordinary least squares and White’s heteroskedasticity-consistent standard errors) and the median regression technique (quantile regression) to examine the signalling power of female directors on the board at the time of an IPO. Findings The results show that the presence and proportion of female directors at the time of the IPO have negative effects on IPO initial returns (IR). The negative effects occur at both the conditional mean and the dispersion of IPO IR. These results are robust to endogeneity bias. Practical implications The findings of this study suggest that female directors on the board at the time of an IPO can be considered as a desirable signal of IPO quality. As a result, IPO issuers can consider signalling the quality of their IPOs by having female directors on their boards. Likewise, market participants can use female directors as an instrument to value an IPO. Originality/value Studies on the impact of female directors on the board have largely been centred on established companies. Thus, this study contributes to the literature by examining the signalling role of women at the time of an IPO, which is considered as a significant milestone in the lifecycle of a company.