FACTORS INFLUENCING THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS IN AN EMERGING MARKET: MALAYSIAN EVIDENCE

Nur-Adiana au Abdullah; Kamarun Nisham Taufil Mohd

doi:10.31436/ijema.v12i2.102

Authors

Nur-Adiana au Abdullah Universiti Utara Malaysia, Faculty of Finance and Banking, Sintok, 06010 Kedah, Malaysia (e-mail: diana897@uum.edu.my) ABSTRACT
Kamarun Nisham Taufil Mohd Universiti Utara Malaysia, Faculty of Finance and Banking, Sintok, 06010 Kedah, Malaysia (e-mail: kamarun@uum.edu.my)

DOI:

https://doi.org/10.31436/ijema.v12i2.102

Abstract

By using 70 initial public offerings (IPOs) in the period 1992 to 1998, it is found that company size, indigenous population ownership and substantial shareholder losses are significant in explaining the variation of IPOsâ€™ underpricing. Large companies are associated with higher discount on their shares to signal their superior future prospects. The unique characteristic of promoting the indigenous population, Bumiputra, to participate in the Malaysian equity market through the government regulatory intervention reduced underpricing. However, such intervention may have contributed to the losses on the part of the substantial shareholders. Surprisingly, Leland and Pyleâ€™s signalling model on entrepreneurâ€™s fractional ownership cannot be supported.

JEL classification: G32, G38

Key words: IPOs, Underpricing, Regulatory intervention