IPO underpricing and aftermarket liquidity

Evidence from Malaysia

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study empirically examines the influence of underpricing on the aftermarket liquidity of 191 initial public offerings (IPOs) that are listed on Bursa Malaysia, an emerging stock market in the South-East Asia, from June 2003 to December 2008. This hypothesized effect is based on the liquidity theory which posits that underpricing contributes to the higher level of aftermarket liquidity. Despite the focus on only underpriced IPOs, the preliminary results are still consistent with those of the recent studies in reporting dramatically low initial returns particularly in 2008, the year that witnesses the sub-prime financial crisis in the United States. The multiple regression results indicate that there exists a significantly positive relationship between Malaysian IPO under-pricing and the level of IPO liquidity in the secondary market. This finding implies that the issuers' decision to underprice pays off. Even though they receive less new capital than they would otherwise have, their highly liquid shares have greater chances of survival in the secondary market and so do the future seasoned equity offerings.

Original languageEnglish
Pages (from-to)299-318
Number of pages20
JournalInternational Journal of Business and Society
Volume14
Issue number2
Publication statusPublished - 2013

Fingerprint

Malaysia
Initial public offerings
Underpricing
Liquidity
Aftermarket
Secondary market
Multiple regression
Seasoned equity offerings
Emerging stock markets
Financial crisis
South-East Asia
Subprime

Keywords

  • Aftermarket liquidity
  • Initial public offerings
  • Malaysian IPO market
  • Underpricing

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Strategy and Management
  • Business and International Management

Cite this

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abstract = "This study empirically examines the influence of underpricing on the aftermarket liquidity of 191 initial public offerings (IPOs) that are listed on Bursa Malaysia, an emerging stock market in the South-East Asia, from June 2003 to December 2008. This hypothesized effect is based on the liquidity theory which posits that underpricing contributes to the higher level of aftermarket liquidity. Despite the focus on only underpriced IPOs, the preliminary results are still consistent with those of the recent studies in reporting dramatically low initial returns particularly in 2008, the year that witnesses the sub-prime financial crisis in the United States. The multiple regression results indicate that there exists a significantly positive relationship between Malaysian IPO under-pricing and the level of IPO liquidity in the secondary market. This finding implies that the issuers' decision to underprice pays off. Even though they receive less new capital than they would otherwise have, their highly liquid shares have greater chances of survival in the secondary market and so do the future seasoned equity offerings.",
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