Divergence of opinion and moderating effect of investors’ attentions in IPO market

Abstract

PurposeThe purpose of this paper is to bridge the gap between the theory underlying divergence of opinion (DOP) and a cognitive concept termed as attention by specifically focussing on the volume and price behaviour in initial public offering (IPO) settings.Design/methodology/approachEmploying the hierarchical regression for a sample of 282 Malaysian fixed price IPOs issued from 2004 to 2014, this research investigated the effect of investors’ attention on other information that complements the information revealed by initial return on DOP. Measure of market adjusted turnover (AbTO) from non-IPO setting was used to capture the DOP in the after-market, while investors’ attention was on a dichotomise scale variable which was captured by the increase/decrease of the Google search index (GOGC2) on the month of listing compared to a month prior to listing.FindingsThe findings indicate that attention moderates the relationship between initial return (also surrogates underpriced IPOs) and DOP. The findings suggest that disagreement to initial returns is reduced, while liquidity in the after-market is promoted, when investors pay more attention to other information that complements price change. The findings also indicate that behavioural tendency is less when individual participation is weak.Research limitations/implicationsThis paper highlights the importance of interaction effects in explaining the behavioural tendency in the after-market.Practical implicationsThe weak individual investors’ participation and greater attention reduce the market inefficiency in Malaysia.Originality/valueThe finding is consistent with the view that the level of individual investors’ participation and information disclosure requirements has an implication on behavioural bias, which affects DOP in the after-market.