Disclosure of Intended Use of IPO Proceeds: Evidence from Malaysia

Abstract

The primary aim of the study is to investigate what Malaysian IPO issuers indicate as the intended use of IPO proceeds. This is achieved through a manual content analysis of 161 IPO prospectuses during the period of 2005-2013. The results indicate that two major intended uses of IPO proceeds are for capital expenditure and working capital. However, we are perturbed by the frequency of the sampled IPOs’ intention to use the IPO proceeds and the higher percentage of total proceeds used for working capital. This calls for serious regulatory policies that would provide issuers access to equity market and to use the IPO proceeds for growth opportunities. A takeaway from the study provides that intended use of IPO proceeds may provide useful information to potential investors to make informed decisions and for issuers to signal their quality.