Growth Opportunity and IPO Value: An Empirical Study of Malaysian IPOs

Ong Chui Zi, Rasidah Mohd-Rashid, Kamarun Nisham Taufil-Mohd

Abstract


ABSTRACT

The offer price of Malaysian initial public offerings (IPOs) is mostly determined by fixed-price mechanism, indicating that information for investors regarding the actual value of an IPO is not being fully reflected in the offer price. The investors’ opinion in fact triggers IPO value on the first trading day in the market. This study aims to investigate the effect of growth opportunity on the pricing of Malaysian IPOs upon being listed on Bursa Malaysia. The sample of the study consists of 126 IPOs listed from January 2009 to December 2017. Through the analysis of cross-sectional and quantile regression in median and high quantiles, the study found a significant positive relationship between growth opportunity and total market value of IPOs. The findings suggest that IPOs which allocate a greater proportion of proceeds for firms’ future growth signal the firms’ quality, leading investors to trigger IPO value upwards during first-trading day. The findings have implications for the regulators, specifically the Securities Commission and Bursa Malaysia, to ensure that the information on the uses of proceeds revealed in IPO prospectuses is in line with the “Equity Guidelines” because this information gives impact on the investors’ decisions towards IPO subscription.

Keywords: Growth opportunity; IPO; market value; quantile; signalling theory

ABSTRAK

Kebanyakan harga tawaran pada tawaran awam awal (IPOs) di Malaysia adalah ditentukan oleh mekanisme harga tetap, menunjukkan bahawa maklumat untuk pelabur tentang nilai sebenar sesuatu IPO adalah tidak sepenuhnya mencerminkan harga tawaran. Pendapat pelabur mempengaruhi nilai IPO pada hari dagangan pertama di pasaran. Kajian ini bertujuan mengkaji kesan peluang pertumbuhan pada harga IPO di Malaysia apabila disenaraikan di Bursa Malaysia. Sampel kajian ini mengandungi 126 saham IPO yang disenaraikan dari Januari 2009 hingga Disember 2017. Melalui analisis regresi keratan-rentas dan kuantil “median” dan kuantil tinggi, kajian ini mendapati hubungan positif yang ketara antara peluang pertumbuhan dan jumlah nilai pasaran IPO. Hasil kajian mencadangkan bahawa IPO yang mengagihkan sebahagian besar daripada dana syarikat untuk pertumbuhan masa depan syarikat mengisyaratkan tahap kualiti syarikat yang baik, seterusnya mendorong para pelabur meningkatkan nilai IPO ke tahap yang tinggi pada hari dagangan pertama. Keputusan kajian memberikan implikasi kepada Suruhanjaya Sekuriti dan Bursa Malaysia dalam memastikan maklumat berkaitan kegunaan dana syarikat yang dinyatakan dalam prospektus IPO adalah sejajar dengan “Garis Panduan Ekuiti” kerana maklumat tersebut memberi kesan kepada keputusan pelabur terhadap langganan IPO.

Kata kunci: Peluang pertumbuhan; IPOs; nilai pasaran; kuantil; teori isyarat


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