Influence of institutional investors' participation on flipping activity of Malaysian IPOs (original) (raw)
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Asian Journal of Business and Accounting, 2017
Manuscript type: Research Paper Research aims: This study examines the moderating effect of information asymmetry on the association between the institutional investors' participation and the initial public offerings (IPO) reactions in the early aftermarket: initial return and flipping activity. Design/ Methodology/ Approach: Using 383 IPOs listed on the Malaysian stock exchange from 2000 to 2013, a hierarchical or the two steps regression analysis is conducted to compare the t-statistics value in the main and the moderated regression models. Research findings: The findings indicate a positive (negative) and significant relationship between the institutional investors' participation and initial return (flipping activity). However, the signalling role of the institutional investors' participation in conveying information on the quality of the IPO issuers weakens when the IPO issuers are surrounded by high information asymmetry. Theoretical contributions/ Originality: This study contributes to the IPO literature by providing empirical evidence demonstrating the moderating effect of information asymmetry on the relationship between the institutional investors and the IPO reactions in the early aftermarket. Practitioner/ Policy implications: The findings provide IPO issuers with an understanding on the significance of information transparency (i.e., low information asymmetry) on investors' reactions. Regulators may also employ the results to set a more stringent monitoring policy on the IPO issuers so as to decrease the likelihood of flipping activities that could erode the initial value of the IPO issuers and wealth of the long-term investors. Research limitations/ Implications: Future studies should be conducted on other IPO markets and also include other signalling devices such as the proportion of shares held by the insiders of the IPO issuer.
IPO Volume, Initial Return, and Market Condition in the Malaysian Stock Market
2013
This paper examines the variability in init ial returns, IPO volu mes, and market conditions of the IPO listed in Bursa Malaysia during the period from January 2000 to December 2010. The IPO volu me is highly auto correlated at low lags and decreases during the high lags. Examining the interrelat ion between IPOs volu me, in itial return, and market condition shows that market volatility causes the initial return, the in itial return causes IPO volu me, intraday volatility causes aftermarket volat ility, and aftermarket volatility causes market volatility. These suggest that, over the sample period, issuers depend on the information in the initial return while taking the decision to go public. The results also document that the past quarter's initial return and market condition highly influence the number of IPO issued the following month. The evidence over the periods of study shows that the initial return and market condition are related to the variability of IPO volume. Therefore the information on the initial return and market condition is important to both issuers and investors in making the decisions.
Flipping Activity and Subsequent Aftermarket Trading in Malaysian Initial Public Offerings (Ipos)
2013
This paper examines the aftermarket trading volume following an initial public offering (IPO) in a sample of 243 IPOs listed on Bursa Malaysia between June 2003 and June 2008. Specifically, this study investigates the degree of flipping activity and its relationship with six ex-ante variables including IPO initial returns. Consistent with previous studies, the result of the cross-sectional multiple regression reveals a significantly strong positive relationship between initial returns and flipping activity for IPOs. Initial returns also seem to influence the subsequent week’s trading volume, but the influence is completely absorbed by flipping activity. The results also show that both institutional investor participation and offer size have significant influences on flipping activity. The results of this study imply that the Malaysian IPO market experiences active flipping activity that, in turn, has a significant role in predicting the subsequent trading activity.
Performance of Malaysian IPOs and Impact of Return Determinants
This study has examined the IPO performance in Malaysia from 2007 to 2010. Results show that under-pricing exists in the first day of trading during the particular period, but results show that the degree of under-pricing is dramatically decreased in comparison with what is shown in previous studies. Empirical findings also show that none of return determinants including Age, size, total unit offered, offering price and KLCI index movement are able to affect on IPO initial return. It shows that Malaysian IPOs follow anarchy during this period while their performances are not predictable by return determinants.
The Role of Institutional Investors in Initial Public Offerings
Review of Financial Studies, 2010
In this paper, we use a large sample of transaction-level institutional trading data to analyze the role of institutional investors in initial public offerings (IPOs). The theoretical literature on IPOs has long argued that institutional investors possess private information about IPOs and that underpricing is a mechanism for compensating them to reveal this private information. We study whether institutions indeed have private information about IPOs, retain their information advantage in post-IPO trading, and are able to realize significant profits from their participation in IPOs. We also study institutional IPO allocations and allocation sales to analyze whether institutions play an important role in supporting IPOs in the aftermarket and are rewarded by underwriters for playing such a role. We find that institutions sell 70.2% of their IPO allocations in the first year, fully realize the "money left on the table," and do not dissipate these profits in post-IPO trading. Further, institutions hold allocations in IPOs with weaker post-issue demand for a longer period, and they are rewarded for this by underwriters with more IPO allocations. Finally, institutional trading has predictive power for long-run IPO performance, especially in IPOs in which they received allocations; however, this predictive power decays over time. Overall, our results suggest that institutional investors possess significant private information about IPOs, play an important supportive role in the IPO aftermarket, and receive considerable compensation for their participation in IPOs. JEL classification: G14; G24
An Assessment of the Performance of Initial Public Offering (IPOs) in Malaysia
Research Journal of Finance and Accounting, 2015
Initial Public Offerings (IPOs) are largely underpriced in short term. This underpricing phenomenon has been well recognized in nearly all the stock markets in the world. Recent evidence suggests that underpricing is higher in a buoyant stock market. Most studies in the field of IPO have only focused on developed countries. Little is known about underpricing and it is not clear what factors influencing underpricing in developing country. Unlike in developed markets, this study analyzed the existence of underpricing issue of Malaysian IPOs listed in Bursa Malaysia from 2000 to 2008. This study then examines the impact of different use types of proceeds on IPO underpricing. In particular, four main influencing factors of underpricing including IPO size, market volatility, underwriter status and reciprocal of IPO price are investigated. A sample of 102 IPOs was selected and analyzed. Results show that the average market adjusted initial return is 9.4%. A regression analysis was conducted which resulted in positive impact of IPO size, market volatility, underwriter status and reciprocal of IPO price on underpricing. Therefore, this study provides a new perspective to analyze the underpricing problem by focusing on the multiple elements.
Institutional Ownership and IPO Performance: Australian Evidence
2010
The duo IPO anomalies of underpricing and long run underperformance have inspired a plethora of studies. Yet few have examined the impact of majority investors in IPOs, namely institutional investors. Consistent with previous studies, we found large underpricing which was greatest in those issuers with the highest initial institutional ownership. Yet these issuers experienced the worst long-run underperformance which casts doubts over the informed-trading hypothesis. The findings are consistent with overreactions driven by informational cascade in the IPO market. High level of initial institutional interests generates informational herding that drives these issuers' prices beyond the fundamental. Over time, market correction leads to the long-run underperformance. Our results cast a somewhat different light on institutions' role in IPOs, rather than being a valuable source of price discovery; Institutions may be a force of destabilization in what is already an event wrath with uncertainty.
The Long-Term Performance of Initial Public Offerings: Evidence from Bursa Malaysia
Journal of Applied Economics and Business Research, 2014
This paper investigates long-term (six-month, one-year, two-year, and three-year) returns of IPOs listed on the Bursa Malaysia (BM) in order to provide a more recent case of performance of IPOs in Malaysia. A total number of 166 firms listed and traded on the Bursa Malaysia (BM) for a period of three years starting from 2004 to 2007 were thoroughly analyzed in this paper. The findings of this paper shows that the average market-adjusted return for the six-month, one-year, two-year, and three-year after listing are -5.2%, -10.8%, -21.4%, and -32.8%, though they are not statistically significant. The regression models for the six-month return consist of market volatilities, book value to market value ratio, underwriter reputation, operating history of a company prior to going public, gross proceeds, total assets of a company prior to going public or size variable, hot or cold market period, industries, and first-day returns as an additional independent variable. The models for the lon...
Expected and realised returns for Singaporean IPOs: Initial and long-run analysis
Pacific-Basin Finance Journal, 1996
We analyse initial and long-run returns for all Singapore IPOs made between l July 1973 and 31 December 1992. Initial returns are found to be around 30 percent. However, after rationing and application costs are taken into account initial returns are insignificantly different from the risk-free rate of return, a result consistent with the predictions of the model of Rock (1986). Initial returns are positively related to the level of oversubscription and retained ownership, although the economic significance of the latter is weak. In contrast to many other international studies of IPOs, the long-run average returns for Singaporean IPOs are insignificantly different from an efficient market expectation. While long-run returns for individual companies show considerable variation, these returns are not predictable using information available at the IPO date. We further investigate the large oversubscription rates which are a peculiar feature of the Singapore IPO market, and argue that they are consistent with demand expansion by informed investors. Our estimates of the minimum price that a rational issuer would set in an IPO are below the actual issue price for all issues, given what we regard as reasonable limits on uninformed demand.
An empirical examination of over-subscription in the Malaysian IPO market
2015
This paper examines the effects of the involvement of informed investors and the presence of information asymmetry in fixed price mechanism on over-subscription ratio in the Malaysian initial public offerings (IPO).Analyzing the data on 373 IPOs listed on Bursa Malaysia from 2000 to 2012, we find an insignificant positive relationship between informed investors and over-subscription.However, the relationship between information asymmetry and over subscription is strongly negative.The negative effect of company size suggests that big companies that are considered to have lower information asymmetry receive less investors’ interest, as investments in low risks companies are expected to provide lower initial returns.