Do institutional investors drive the IPO valuation?

Ong, Chui Zi; Mohd‐Rashid, Rasidah; Mohd, Kamarun Nisham Taufil

doi:10.1016/j.bir.2020.05.003

Cited by 21 publications

(32 citation statements)

References 44 publications

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“…After the debut, the market performance breaks away from the fundamentals and is determined mainly by timingthe mood of investors. This is against the predictions of Ong et al (2020) for the Malaysian market. Thus, the paper provides new knowledge about the mechanisms governing 'relational investor' markets, which constitute an area that has still not been fully explored, especially in emerging markets.…”

Section: Introductionmentioning

confidence: 53%

Does share capital mater for company performance?

Dudycz

2021

Economic Research-Ekonomska Istraživanja

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This article examines the impact of share capital on companies' performance as well as the effect of accounting information on companies' market performance and the impact of pre-IPO information on the predictive power of companies' performance after an initial public offering (IPO). The research was conducted on a sample of IPO companies debuting on the Warsaw Stock Exchange. It shows that a large percentage of share capital in equity reduces capital flexibility but can also be a signal to improve companies' market performance. It also shows that after an IPO, the market's information efficiency diminishes, which means, among other things, that pre-IPO accounting information has a negligible impact on the companies' market performance after the IPO.

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Section: Introductionmentioning

confidence: 53%

Does share capital mater for company performance?

Dudycz

2021

Economic Research-Ekonomska Istraživanja

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“…INSOWN had a significant positive association with PV_PS in the OLS model. This result indicates that a firm with high institutional investor ownership serves as a signal of high quality of firms, which in turn signal the underwriter to value IPOs fairly (Ong et al , 2020a). The result for PUBOWN indicates that the firms issuing greater proportions of shares to retail investors were undervalued by the underwriters.…”

Section: Findings and Discussionmentioning

confidence: 99%

“…Institutional investor ownership (INSOWN) was measured as the proportion of new shares for institutional investors as a percentage of the total number of shares offered in an IPO. According to Ong et al (2020a), IPOs with high institutional investor ownership convey a signal of superior-quality firms, subsequently resulting in approximately fair valuation of the IPOs. PUBOWN represents retail ownership, expressed as the percentage of retail offerings over the total shares issued in an IPO (Tajuddin et al , 2019).…”

Section: Methodsmentioning

confidence: 99%

Does disclosure of earnings forecasts regulation affect the valuation of IPOs? Evidence from an emerging country

Ong

Mohd‐Rashid

Mehmood

et al. 2021

ARA

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PurposeThis paper aimed to explore the effect of a regulatory change pertaining to earnings forecasts disclosure from a mandatory to a voluntary regime on the valuation of Malaysian initial public offerings (IPOs).Design/methodology/approachThe study employed ordinary least square (OLS) regression and quantile regression to analyse the impact of disclosure of earnings forecasts regulation on the valuation of IPOs which comprised 458 IPOs reported for the period 2000–2017 on Bursa Malaysia.FindingsThis paper revealed that the regulatory change in forecasted earnings disclosure from a mandatory to a voluntary regime, effective from 1 February 2008, had a negative impact on the valuation of IPOs. The regime change did not improve the transparency of firms issuing IPOs. In fact, the absence of forecasted earnings information in most IPO prospectuses caused ex ante uncertainties to increase. Voluntary disclosure, however, had a significant positive relationship with the valuation of the IPOs issued during the global financial crisis period (2008–2010). Firms concealed their poor qualities by excluding forecasted earnings information from their prospectuses in order to have a fair valuation.Practical implicationsThe findings may be used by policymakers as guidance in improving the existing regulation regarding the disclosure of forecasted earnings.Originality/valueThis paper provides new insight on the effect of a regulatory change pertaining to earnings forecasts disclosure from a mandatory to a voluntary regime on the valuation of Malaysian IPOs. It also provides evidence that the regulatory change of earnings forecast disclosure affects the IPOs' values listed during the global financial crisis period.

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“…LNOFFSZ is the natural log of the total number of shares offered by IPOs (Mohd-Rashid et al, 2014). DBOOK is a dummy variable for the pricing mechanism, which takes the value of "1" for the use of the book-building mechanism and "0" for the use of the fixed-price mechanism in pricing IPOs (Ong et al, 2020). SHARERET refers to the percentage of pre-IPO shares held by the existing shareholders after a firm is listed (Mohd-Rashid et al, 2016).…”

Section: Initial Public Offering Valuation and Underpricingmentioning

confidence: 99%

“…A dummy variable with a value of "1" for IPOs are priced by the book-building mechanism and 0 for the fixed-price mechanism (Ong et al, 2020)…”

Section: Appendixmentioning

confidence: 99%

IPO valuation using the price-multiple methods: evidence from Malaysia

Ong

Mohd‐Rashid

Mohd

2021

JFRA

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Purpose This study aims to investigate the valuation accuracy of Malaysian initial public offerings (IPOs) by using price-multiple methods. Design/methodology/approach Cross-sectional data including 467 IPOs listed on the Malaysian stock exchange were used for the period of 2000–2017. This study used univariate ordinary least square (OLS) regression to analyse the relationship between IPOs’ price-multiples and comparable firms’ price-multiples. The test of valuation accuracy was conducted via computing valuation errors by segregating the sample into two groups: fixed-price IPOs and book-built IPOs. Furthermore, multiple OLS regression was used to examine the influence of IPO valuation on underpricing. Findings The findings of the results suggested that IPOs price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) multiples were positively related to the median P/E, P/B and P/S multiples of five comparable firms matched by industry and revenues. The P/S multiple was shown to be the most significant valuation method, specifically in book-built IPOs. The findings indicated that those firms that had a lower valuation in comparison to the comparable firms were inclined to underprice their IPOs to allure investors to subscribe IPOs. In addition, book-built IPOs that had fair valuations were inclined to generate higher initial returns for investors. Practical implications The findings of this study observed implications for underwriters in avoiding the mis-valuation issue by considering the book-building mechanism. Originality/value This study attempted to explore the suitability of the valuation method to value IPOs in Malaysia.

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Do institutional investors drive the IPO valuation?

Cited by 21 publications

References 44 publications

Does share capital mater for company performance?

Does share capital mater for company performance?

Does disclosure of earnings forecasts regulation affect the valuation of IPOs? Evidence from an emerging country

IPO valuation using the price-multiple methods: evidence from Malaysia

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