Abstract
The primary purpose of this study is to examine the effect of issue-specific characteristics and company’s attributes on the existence of underpricing of IPOs listed in Malaysia Stock Exchange from 2012 to 2015. Market-adjusted abnormal return is used as a proxy of dependent variable in this study, namely degree of IPO underpricing whereas the independent variables are the determinants of IPO. This paper aims to illustrates the relationship between the degree of IPO underpricing and the four determinants namely issues price, offer size, company age and market capitalization. Upon the analysis, the degree of IPO underpricing is 21.05% from a sample of 59 IPOs listed in the stock market. By applying multiple regression analysis, noted that market capitalization shows positive relationship with the degree of IPO underpricing whereas issues price and offer size are negatively related to the dependent variable. Moreover, the analysis indicates that the relationship between degree of IPO underpricing and company age is insignificant.
Highlights
Several empirical studies investigated the occurrence of underpricing for Initial Public Offering (IPO) of newly listed firms in different countries
Research Methodology Sample Selection and Data The sample employed in this study consists of 59 listed IPOs on Main Market and ACE market in Malaysia Stock Exchange from January 1, 2012 to December 1, 2015
There are 16 percent of the IPOs are listed at ACE market, while the others are listed on Main Market
Summary
Several empirical studies investigated the occurrence of underpricing for IPO of newly listed firms in different countries. This universal phenomenon has been well documented by the researchers due to the public interest on the abnormal high return for the primary buyers in capital market. A total of three kinds of methods that are used to identify the IPOs offering price, which are auctions, fixed priced offers and book building. The most common practice that applied around the world is book building while Malaysia applied fixed priced offers for the IPOs. For fixed priced offers method, issuers or underwriters will determine the price to be traded on the prospectus day before the shares are allocated to the investors. In order to overcome the increases of investors’ demand, the IPO will allocate based on the lottery basis
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