Impact of the Corporate Structure and Sharia-Compliant Status to Average Degree of IPO Underpricing in Malaysia Market

Abstract

Initial Public Offering (IPO) for sharia-compliant companies is an alternative way for Islamic companies to raise capital. Many empirical studies regarding IPO underpricing have been developed to understand the numerous issues related with IPO phenomenon especially in different types of markets. Therefore, this study examined factors that relate to the short term performance of IPO in Malaysian market. The initial results show that the average degree of IPO underpricing is 8.1% during the period of 2012–2015. This concludes that the rate of underpricing is at low level. Secondly, the determinants of IPO underpricing are examined using a linear regression analysis. The results show that the average degree of IPO underpricing was driven by corporate structure, sharia-status, initial return and closing pricing. In addition, the result from R-square analysis is 92.3%. This result indicates that corporate structure, sharia-status, initial return and closing pricing can explain the 92.3% variation of the average degree of IPO underpricing. The F-value is 56.9 indicating that this hypothesis is statistically significant at 1% level of significant between the dependent and independents variable. Therefore, this study suggests that the corporate structure can determine the performance of IPO companies. This is indicates that for any company that has more subsidiaries, it can reduce the financial problem caused in their corporation by diversifying their market segmentation.