Abstract
The main purpose of this study is to investigate an important issue in behavioural finance area that is the role of investor sentiment in determining firm performance, alongside with market timing and other fundamental firm factors in the context of Malaysian market. The impact of pre and post financial crisis during study period of 2004 to 2015 is incorporated in the analysis. The study uses a balanced panel data of 143 IPO firms in Malaysia during the study period. The sentiment index is developed using panel data cross section based on three IPOs proxies, which are IPO volume, market turnover and dividend premium. The findings indicate that market timing is found to have a strong influence towards firm performance with a positive and high level of significance relationship during pre and post financial crisis. Whereas investor sentiment does influence firm performance, particularly when timing is proxied by initial return before the financial crisis period. Other firm specific factors, growth show very strong positive relationship with firm performance. The remaining factors, namely tangibility of asset, profitability, size and industry show mix results either consistent or inconsistent with past literature irrespective of pre or post financial crisis. The finding offers a useful reference for firm managers’ to consistently time the market for the new and subsequent issue. While the investors have to pay attention on important information available in the market than become overly optimistic about future prospect of any investment as firm will continue to exploit timing strategy in their financing decision.
Highlights
On the average, 25% of the firms that came through Initial Public Offerings (IPO) decide to reissue new stocks using Seasoned Equity Offerings (SEO) within two years (Welch 1989)
In order to investigate the role played by investor sentiment, this study develop a sentiment index using IPO volume, market turnover and dividend premium as a proxy for investor sentiment
The primary conclusion to be drawn from this study is that the findings support the notion of investor sentiment and timing theory is a valid phenomenon in emerging market of Malaysia
Summary
25% of the firms that came through Initial Public Offerings (IPO) decide to reissue new stocks using Seasoned Equity Offerings (SEO) within two years (Welch 1989). According to Abul & Rumi (1999) and Abd Rahim, Nor & Harjito (2006) the overall Malaysian capital market is to co-integrate with other markets and there is some sort of contagion effect among the markets Overall, these studies indicate a sentiment driven expectation and trading behaviour in Malaysian market. It has been argued that the impact of investor sentiment would be stronger in emerging economies compared to their developed counterparts (Baker et al 2010; Nepali,2018) This situation sets the motivation for this study, to investigate further on the role of investor sentiment with respect to the IPO firm performance. As there is a strong correlation between changes in net portfolio of equity flows and stock prices in Malaysia (Goh & Lim, 2010), it is worth to assess the impact of financial crisis on this study
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