Managers’ Bait-and-Switch Tactics in the Malaysian Initial Public Offerings Market

Abstract

Studies have shown that initial public offerings (IPOs) issuers’ intended use of IPO proceeds could provide insights into the motives for IPOs, however, whether or not issuers deviate from the stated use as disclosed in the prospectus remains unexplored. Therefore, this study used a sample of Malaysian IPO companies to investigate whether the actual use of IPO proceeds differs from the intended use of capital raised as stated in the prospectus. Based on the content analysis of IPO companies’ annual reports, 27 out of the 121 companies examined were unable to explain how the proceeds raised were applied. A total of 73 out of 121 companies exhibited changes in the intended use of capital raised, while 21 companies used the IPO proceeds exactly as intended. Noticeably, 20 out of the 73 companies sought for board approval for changes in the use of capital raised as stated in the prospectus. Therefore, there is indication that IPO issuers do change their intended use of IPO proceeds after listing on Bursa Malaysia. The implication of this is that the market may react to such changes and the post-IPO performance may be at stake. Therefore, future studies should examine how IPO companies’ performance is influenced by the intended and actual use of capital raised as this may help regulators and market participants to monitor its actual use.