Abstract
This paper examines the influence of institutional investors' participation on flipping activity of Malaysian IPOs. Measured as the percentage of trading volume on the first trading day against the total number of shares offered, flipping is the quickest way to gain huge profits from IPOs. However, excessive flipping activity has significant potential to create artificial downward pressure on the price of IPOs. One way to reduce such an adverse effect is by strategically allocating a larger proportion of new shares to institutional investors. This is because institutional investors are normally assumed to be long-term investors. As such, they are less likely to flip their allocated IPOs in the immediate aftermarket. The long-term investment argument is consistent with institutional investors' preference for a steady income stream in the form of dividends. Drawing upon this argument, the greater participation of institutional investors during an IPO is expected to be an effective strategy to control aggressive flipping activity. The Malaysian IPO market offers an excellent opportunity to examine this hypothesis because data regarding the allocation of new shares to institutional investors can be traced conveniently through a type of IPO referred to as "private placement". Based upon an examination of 248 IPOs listed on Bursa Malaysia between January 2000 and December 2012, this study finds a negative relationship between institutional investors' participation and flipping activity. This result lends strong support to the argument concerning the effectiveness of institutional investors' participation in controlling flipping activity in the Malaysian IPO market.
| Original language | English |
|---|---|
| Pages (from-to) | 470-486 |
| Number of pages | 17 |
| Journal | Economic Systems |
| Volume | 38 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 2014 |
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Keywords
- Flipping activity
- Institutional investors' participation
- Malaysian IPO market
ASJC Scopus subject areas
- Economics and Econometrics
Cite this
Influence of institutional investors' participation on flipping activity of Malaysian IPOs. / Che-Yahya, Norliza; Abdul Rahim, Ruzita; Yong, Othman.
In: Economic Systems, Vol. 38, No. 4, 2014, p. 470-486.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Influence of institutional investors' participation on flipping activity of Malaysian IPOs
AU - Che-Yahya, Norliza
AU - Abdul Rahim, Ruzita
AU - Yong, Othman
PY - 2014
Y1 - 2014
N2 - This paper examines the influence of institutional investors' participation on flipping activity of Malaysian IPOs. Measured as the percentage of trading volume on the first trading day against the total number of shares offered, flipping is the quickest way to gain huge profits from IPOs. However, excessive flipping activity has significant potential to create artificial downward pressure on the price of IPOs. One way to reduce such an adverse effect is by strategically allocating a larger proportion of new shares to institutional investors. This is because institutional investors are normally assumed to be long-term investors. As such, they are less likely to flip their allocated IPOs in the immediate aftermarket. The long-term investment argument is consistent with institutional investors' preference for a steady income stream in the form of dividends. Drawing upon this argument, the greater participation of institutional investors during an IPO is expected to be an effective strategy to control aggressive flipping activity. The Malaysian IPO market offers an excellent opportunity to examine this hypothesis because data regarding the allocation of new shares to institutional investors can be traced conveniently through a type of IPO referred to as "private placement". Based upon an examination of 248 IPOs listed on Bursa Malaysia between January 2000 and December 2012, this study finds a negative relationship between institutional investors' participation and flipping activity. This result lends strong support to the argument concerning the effectiveness of institutional investors' participation in controlling flipping activity in the Malaysian IPO market.
AB - This paper examines the influence of institutional investors' participation on flipping activity of Malaysian IPOs. Measured as the percentage of trading volume on the first trading day against the total number of shares offered, flipping is the quickest way to gain huge profits from IPOs. However, excessive flipping activity has significant potential to create artificial downward pressure on the price of IPOs. One way to reduce such an adverse effect is by strategically allocating a larger proportion of new shares to institutional investors. This is because institutional investors are normally assumed to be long-term investors. As such, they are less likely to flip their allocated IPOs in the immediate aftermarket. The long-term investment argument is consistent with institutional investors' preference for a steady income stream in the form of dividends. Drawing upon this argument, the greater participation of institutional investors during an IPO is expected to be an effective strategy to control aggressive flipping activity. The Malaysian IPO market offers an excellent opportunity to examine this hypothesis because data regarding the allocation of new shares to institutional investors can be traced conveniently through a type of IPO referred to as "private placement". Based upon an examination of 248 IPOs listed on Bursa Malaysia between January 2000 and December 2012, this study finds a negative relationship between institutional investors' participation and flipping activity. This result lends strong support to the argument concerning the effectiveness of institutional investors' participation in controlling flipping activity in the Malaysian IPO market.
KW - Flipping activity
KW - Institutional investors' participation
KW - Malaysian IPO market
UR - http://www.scopus.com/inward/record.url?scp=85027956470&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85027956470&partnerID=8YFLogxK
U2 - 10.1016/j.ecosys.2014.03.002
DO - 10.1016/j.ecosys.2014.03.002
M3 - Article
AN - SCOPUS:85027956470
VL - 38
SP - 470
EP - 486
JO - Economic Systems
JF - Economic Systems
SN - 0939-3625
IS - 4
ER -