Abstract
This paper examines the current status of research regarding under-pricing in the Malaysian IPOs. We have divided the review of past studies into the following categories: investor information, the choice of underwriter, ownership structure, share lock-up period, supply of IPOs, mechanism for pricing IPOs, institutional investor involvement, and board structure. We have shown that there is a noticeable decline in initial return over time, perhaps due to the strengthening of the regulatory environment and the ability of investment bankers to adequately manage the listing process of new issues. Furthermore, based on the review of past studies, we have managed to pinpoint significant factors that influenced the initial return in the Malaysian IPO market. Finally, we also provide suggestions for future research.
Highlights
To go public, a private company must first issue equity securities to outside investors, in what is called an initial public offering (IPO)
Abdul-Rahim and Yong (2008) attribute the declining trend in the initial performance of IPOs in the Malaysian market to the Securities Commission (SC)’s decision to liberalise the IPO pricing mechanism in 1996 and due to the various measurements taken by the SC and the Malaysian government to counteract the adverse effects of the 1997/1998 Asian Financial Crisis
We put forth the idea that information asymmetry was the main cause of under-pricing in the Malaysian IPO market
Summary
A private company must first issue equity securities to outside investors, in what is called an initial public offering (IPO). Among the first empirical studies that tested under-pricing and reported a positive mean initial return (which implies the existence of under-pricing) in the U.S IPO market, are Ibbotson (1975), Logue (1973), and Stoll and Curley (1970). Various researchers in various countries have tested the under-pricing phenomenon Many of these studies have confirmed a positive initial return in various markets around the world. This is made possible through the latest updated version (16th of February 2015) of Loughran’s et al (1994) table, which contains the average under-pricing history of 52 countries. During the time of optimism, if IPOs flood the market every offer is likely to be oversubscribed, as the theory of animal instincts would suggest
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