Under-Pricing and Listing Board in Explaining Heterogeneity of Opinion Regarding Values of Malaysian IPOs

Yong, Othman; Albada, Ali

doi:10.17576/pengurusan-2018-52-05

Cited by 8 publications

(10 citation statements)

References 22 publications

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“…Moreover, the greater the level of uncertainty about the true value of new issue, the greater the level of IPO under-pricing (Beatty and Ritter, 1986). In Malaysia, prospective investors are exposed to high ex ante uncertainty due to the use of fixed-price method (Yong and Albada, 2018), which results in high level of share mispricing as indicated by high IPO under-pricing (Badru and Ahmad-Zaluki, 2018). Ritter and Welch (2002) argued that issuing firm could reduce the level of ex ante uncertainty surrounding its IPO issues through signalling, which helps in lowering the level of investors' heterogeneity of opinion and under-pricing cost.…”

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“…Fixed-price mechanism is the most popular mechanism for pricing IPOs in Malaysia (Low and Yong, 2013;Yong, 2015;Yong and Albada, 2018). However, book-building method is also practiced in Malaysia, but it is only available quite recently (Yong and Albada, 2018). The listing requirements in the Malaysian capital market encourage small and young companies to raise capital through IPOs (Badru and Ahmad-Zaluki, 2018).…”

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Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence

Albada

Low

Yong

2019

IJOEM

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Purpose The purpose of this paper is to examine the effects of prestige signals measured by the reputations of the underwriter, auditor and board size on the heterogeneity of investor belief about the true value of IPO in the Malaysian IPO market. Design/methodology/approach This study employs a sample of 281 IPOs issued between January 2000 and December 2015. The relationship between prestige signals and investor heterogeneity, measured by first-day price range of IPOs, is analysed using cross-sectional regression and quantile regression technique. Findings Of the three prestige signals, the findings show that only underwriter reputation and board size have significant negative relationships with IPO first-day price range. This implies that IPOs underwritten by reputable underwriters and issuing firms with larger board members have lower heterogeneity of opinion among investors. The findings also show that underwriter and auditor reputations have negative relationship with IPO initial return, suggesting that these prestige signals help to reduce IPO under-pricing, which is a direct cost of raising capital for the issuing firm. Furthermore, the results indicate that offer price, initial return, over-subscription ratio and private placement are associated with higher first-day price range. However, the findings on offer size suggest that larger IPO offer size is associated with lower first-day price range. Overall, the findings suggest that firm’s prestige signals reduce opinion heterogeneity among investors and that lower investors’ heterogeneity leads to lower IPO under-pricing cost for issuing firms. Originality/value Despite the importance of underwriter, auditor and board member reputations in signalling firm’s quality and reducing the level of information asymmetry of the listing firm’s issues, research on the effects of prestige signals on investor heterogeneity remains unexplored. This study investigates the role of prestige signals in influencing investors’ heterogeneity in Malaysia. The authors conjecture that underwriter, auditor and board member with higher reputations are associated with lower levels of opinion heterogeneity among IPO investors.

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Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence

Albada

Low

Yong

2019

IJOEM

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“…Moreover, the initial returns are calculated by subtracting the opening price of an IPO with the offer price of an IPO then divide it by the offer price. This method is called the offer-to-open method, which was implemented by Yong (2011) and Yong and Albada (2018).…”

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Signalling Effect of Auditor Reputation and Lock-Up Period on Over-Subscription Ratio: Evidence from Malaysian Fixed-Price IPOs

Albada

Yong

Low

2021

IJBS

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This study investigates the signalling effect of auditor reputation and lock-up period on the subscription demand of investors in the Malaysian IPO market that uses the fixed-price method in pricing IPOs. The study sample covers 420 IPOs listedon Bursa Malaysia from January 2000 to December 2015. The present study employsOrdinary Least Square(OLS)andQuantile Regression(QR)methodsin investigating the signalling effect on over-subscription ratio (OSR). The results indicate that auditor reputation has a negative effect and the lock-up period has a positive effect on OSR. This shows that investors’ demand in Malaysia is driven by capital gain and not by the quality of the listing firm. This is also supported by the control variables, where IPOs with low initial return, high offer price, high institutional involvement, and reputable underwriterhave lower OSR because they have lower initial returns.

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“…The investors' perception towards the IPO market values varies as the heterogeneity of investors' opinions will exhibit different behavioral tendencies when the IPO firms go public (Miller 1977). Further, Yong and Albada (2018) stated that high level of underpricing could influence the heterogeneity of investors' opinions on the firm's intrinsic value among fixed-price IPOs in Malaysia. The high level of underpricing is triggered Jurnal Pengurusan 58 (2020) 15 -25 https://doi.org/10.17576/pengurusan-2020-58-02 by the disagreement among investors on the ex-ante information that available prior to the IPO listing.…”

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Growth Opportunity and IPO Value: An Empirical Study of Malaysian IPOs

Ong¹,

Mohd‐Rashid²,

Mohd³

2020

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The offer price of Malaysian initial public offerings (IPOs) is mostly determined by fixed-price mechanism, indicating that information for investors regarding the actual value of an IPO is not being fully reflected in the offer price. The investors' opinion in fact triggers IPO value on the first trading day in the market. This study aims to investigate the effect of growth opportunity on the pricing of Malaysian IPOs upon being listed on Bursa Malaysia. The sample of the study consists of 126 IPOs listed from January 2009 to December 2017. Through the analysis of cross-sectional and quantile regression in median and high quantiles, the study found a significant positive relationship between growth opportunity and total market value of IPOs. The findings suggest that IPOs which allocate a greater proportion of proceeds for firms' future growth signal the firms' quality, leading investors to trigger IPO value upwards during first-trading day. The findings have implications for the regulators, specifically the Securities Commission and Bursa Malaysia, to ensure that the information on the uses of proceeds revealed in IPO prospectuses is in line with the "Equity Guidelines" because this information gives impact on the investors' decisions towards IPO subscription.

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Under-Pricing and Listing Board in Explaining Heterogeneity of Opinion Regarding Values of Malaysian IPOs

Cited by 8 publications

References 22 publications

Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence

Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence

Signalling Effect of Auditor Reputation and Lock-Up Period on Over-Subscription Ratio: Evidence from Malaysian Fixed-Price IPOs

Growth Opportunity and IPO Value: An Empirical Study of Malaysian IPOs

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