The moderating effect of information asymmetry on the signalling role of institutional investors in the Malaysian IPOs

Norliza Che-Yahya, Ruzita Abdul Rahim, Rasidah Mohd-Rashid

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)127-165
Number of pages39
JournalAsian Journal of Business and Accounting
Volume10
Issue number1
Publication statusPublished - 2017

Fingerprint

Initial public offerings
Moderating effect
Asymmetry of information
Institutional investors
Participation
Information asymmetry
Aftermarket
Investors
Regression analysis
Insider
Policy implications
Wealth
Information transparency
Statistics
Empirical evidence
Design methodology
Regression model
Monitoring
Stock exchange
Proportion

Keywords

  • Information Asymmetry
  • Institutional investors’ participation
  • IPO immediate aftermarket reaction
  • Malaysian IPO market

ASJC Scopus subject areas

  • Business and International Management
  • Accounting

Cite this

The moderating effect of information asymmetry on the signalling role of institutional investors in the Malaysian IPOs. / Che-Yahya, Norliza; Abdul Rahim, Ruzita; Mohd-Rashid, Rasidah.

In: Asian Journal of Business and Accounting, Vol. 10, No. 1, 2017, p. 127-165.

Research output: Contribution to journalArticle

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