Shariah -compliant status and investors’ demand for IPOs: the effects of information asymmetry
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 15 August 2019
Issue publication date: 27 September 2019
Abstract
Purpose
The purpose of this paper is to investigate the effects of Shariah-compliant status and the presence of information asymmetry on investors’ demand for initial public offerings (IPOs) in Malaysia.
Design/methodology/approach
The data regarding 260 IPOs dated for a duration of 11 years were acquired from the websites of Bursa Malaysia and Malaysian Issuing House. In evaluating the association between IPO oversubscription and the independent variables in this study, multivariate and quantile regression analyses were implemented.
Findings
It was found that Shariah-compliant status (DSHARIAH) had a significant positive relationship with IPO oversubscription. With this, it was indicated that Shariah-compliant status gains investors’ interests in subscribing to IPOs as these shares could be distributed to a wider group of investors. In the case of the proxies of information asymmetry, although firm size posed significant effects on IPO oversubscription, the effects were negative. Meanwhile, institutional investors posed significant positive effects on IPO oversubscription. Furthermore, it was indicated from the negative effects of firm size that less subscription is received by large firms which are perceived to possess lower information asymmetry from the investors. This is owing to the less underpricing provided by the issuers for their IPOs. However, it was indicated from the significant positive association between institutional investors and IPO oversubscription that the participation in the IPO among institutional investors would enhance the enthusiasm of investors for a specific stock and increase the probability of IPO oversubscription. With this, the winner’s curse hypothesis was supported.
Research limitations/implications
It is recommended that future studies investigate the compliance aspect, specifically the financial and nonfinancial aspects which may affect investors’ decision-making process for their investment.
Practical implications
With the availability of this study’s indicators in the prospectus, the findings of this study have provided useful insights for an issuer and underwriter to ensure a good subscription of its issuance.
Social implications
The findings of this study have provided further comprehension to investors regarding the essential information found in the prospectus during the decision-making process done for IPO subscription.
Originality/value
To the best of the authors’ knowledge, this is one of the first articles which have proven the effects of Shariah-compliant status and the presence of information asymmetry on IPO investors’ demand.
Keywords
Acknowledgements
The authors would like to acknowledge the research support from Fundamental Research Grant Scheme (FRGS/1/2018/SS01/UUM/02/7) (S/O Code: 14203) provided by the Ministry of Higher Education, Malaysia. The authors thank the anonymous referees for their constructive comments.
Citation
Tajuddin, A.H., Mohd Rashid, R., Khaw, K.L.-H. and Che Yahya, N. (2019), "
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited