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Article
Publication date: 3 December 2020

Nurwati A. Ahmad-Zaluki and Bazeet Olayemi Badru

This study aims to investigate the effects of the intended use of initial public offerings (IPO) proceeds that is disclosed in the prospectus on IPO initial returns.

Abstract

Purpose

This study aims to investigate the effects of the intended use of initial public offerings (IPO) proceeds that is disclosed in the prospectus on IPO initial returns.

Design/methodology/approach

A sample of IPOs listed on Bursa Malaysia from 2005 to 2015 is used. The intended use of IPO proceeds is categorised into three uses, namely, growth opportunities, debt repayment and working capital. In addition to ordinary least squares regression, the study applies a more sophisticated and robust approach using the quantile regression technique.

Findings

The results show that the intended use of IPO proceeds for growth opportunities and working capital is positively associated with IPO initial returns, whereas debt repayment is negatively associated with IPO initial returns. When the intended use of IPO proceeds for growth opportunities is further expanded into capital expenditure (CAPEX) and research and development (R&D), the intended use of IPO proceeds for CAPEX is positively associated with IPO initial returns, whereas R&D is negatively associated with IPO initial returns.

Research limitations/implications

These findings suggest that intended use of IPO proceeds provides useful information about IPO initial returns and investors can use this information as guidance to make informed decisions. In addition, regulatory authorities should pay close attention to the amount allocated to each intended use of IPO proceeds as this may play a critical role in the success of a company and the economy.

Originality/value

This study gives new empirical evidence on the desire and motivations of IPO and the usefulness of designated use of IPO proceeds disclosed in the prospectus in explaining IPO initial returns.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 5 February 2018

Bazeet Olayemi Badru and Nurwati A. Ahmad-Zaluki

The purpose of this paper is to investigate whether proxies considered under ex ante uncertainty hold true under a fixed price mechanism structure. In particular, the…

Abstract

Purpose

The purpose of this paper is to investigate whether proxies considered under ex ante uncertainty hold true under a fixed price mechanism structure. In particular, the study examines whether pre-initial public offering (IPO) financial performance, measured by Altman Z-score, can serve as a proxy for ex ante uncertainty or signalling in an IPO market where a fixed price mechanism is used to determine the offer price.

Design/methodology/approach

This study uses solely ex ante information available to prospective investors prior to the IPO to proxy for ex ante variables. It also applies a more sophisticated and robust approach using quantile regression (QR) technique in addition to ordinary least squares (OLS) regression. Applying the QR technique allows the study to produce estimates for the conditional quantiles of the distribution of IPO initial returns and address the violations of basic assumptions of the standard OLS technique.

Findings

The results show that for ex ante variables, such as IPORISK, company size, the Altman Z-score measure of pre-IPO performance, audit quality and the technology industry, are significantly related to IPO initial returns. However, the relationship differs across the conditional quantiles of the distribution of IPO initial returns, which would not have been recognised using standard OLS. However, the sign of the coefficients shown by some of these variables contradicts the ex ante uncertainty hypothesis assumption, but they are found to have predictive power in explaining IPO initial returns. These findings reveal unique characteristics of the IPO process and investors in Malaysia. Most importantly, the Altman Z-score is found to be significant in the lower and upper quantiles, but insignificant around the median quantile, which implies that Altman Z-score is important for IPOs with low and high initial returns.

Research limitations/implications

These findings suggest that theoretical explanations of the ex ante uncertainty hypothesis cannot be generalised across financial markets, particularly in the Malaysian IPO market where fixed price offerings are common, and investors are risk averse, whereby they avoid risky IPOs, and prefer to take a small amount of returns against high risks. In addition, the composition of the companies in the market is not as large as the developed markets. This implies that the share price of the IPO may be sensitive to other disclosures in the prospectus, market sentiments or financial news. This study recommends the need for more empirical evidence for this purpose by including other important proxies of ex ante uncertainty, such as the use of IPO proceeds and risk factors that are disclosed in the prospectus to test whether the ex ante uncertainty hypothesis holds true in Malaysia.

Originality/value

This study fulfils the need for finding an appropriate theory that better explains IPO initial returns in the Asian IPO market by focussing exclusively on the pre-IPO information available in the prospectus. It also sheds light on important selected pre-listing information.

Details

Asian Review of Accounting, vol. 26 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 2 May 2019

Bazeet Olayemi Badru, Nurwati A. Ahmad-Zaluki and Wan Nordin Wan-Hussin

The purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal…

Abstract

Purpose

The purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal of IPO quality.

Design/methodology/approach

A sample of 220 Malaysian IPOs over the period of 2005–2015 was used. This study employed the mean regression technique (ordinary least squares and White’s heteroskedasticity-consistent standard errors) and the median regression technique (quantile regression) to examine the signalling power of female directors on the board at the time of an IPO.

Findings

The results show that the presence and proportion of female directors at the time of the IPO have negative effects on IPO initial returns (IR). The negative effects occur at both the conditional mean and the dispersion of IPO IR. These results are robust to endogeneity bias.

Practical implications

The findings of this study suggest that female directors on the board at the time of an IPO can be considered as a desirable signal of IPO quality. As a result, IPO issuers can consider signalling the quality of their IPOs by having female directors on their boards. Likewise, market participants can use female directors as an instrument to value an IPO.

Originality/value

Studies on the impact of female directors on the board have largely been centred on established companies. Thus, this study contributes to the literature by examining the signalling role of women at the time of an IPO, which is considered as a significant milestone in the lifecycle of a company.

Details

International Journal of Managerial Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 11 September 2018

Bazeet Olayemi Badru, Nurwati A. Ahmad-Zaluki and Wan Nordin Wan-Hussin

The purpose of this paper is to examine whether the differences in men and women, such as risk aversion in decision making, can influence the amount of capital that the…

Abstract

Purpose

The purpose of this paper is to examine whether the differences in men and women, such as risk aversion in decision making, can influence the amount of capital that the board of directors can allocate for investment opportunities.

Design/methodology/approach

This study sampled 212 IPOs over the period of 2005–2015 and employed the OLS and the quantile regression techniques to examine the impact of female directors on capital allocation.

Findings

The results show that women on corporate boards have a positive influence on the amount of capital an IPO company can allocate for investment opportunities. These findings suggest that the investment strategies of women in an emerging financial market, like Malaysia, may differ from women in other financial markets.

Practical implications

The presence of women on corporate boards plays an important role in board involvement in a company’s strategic decision at the time of the IPO. Therefore, regulators and IPO issuers should pay close attention to the corporate governance structure of a company at the time of an IPO. In addition, investors and other stakeholders of a company may consider women on corporate boards as an important factor in financing and investment decisions.

Originality/value

Despite several studies that have examined the influence of women on corporate boards on corporate outcomes, globally, the presence of women on corporate boards and their influence on corporate decision-making related to allocation of capital to investment opportunities, have not been fully explored in the IPO literature.

Details

Management Decision, vol. 57 no. 3
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 11 June 2018

Jimoh Olajide Raji, Rihanat Idowu Abdulkadir and Bazeet Olayemi Badru

The purpose of this paper is to investigate the dynamic relationship between Nigeria-US exchange rate (XR) and crude oil price (OILP) using daily data from 1 January 2001…

Abstract

Purpose

The purpose of this paper is to investigate the dynamic relationship between Nigeria-US exchange rate (XR) and crude oil price (OILP) using daily data from 1 January 2001 to 31 December 2015.

Design/methodology/approach

The study uses alternative methods, including vector autoregressive-generalised autoregressive conditional heteroskedasticity (VAR-GARCH) within the framework of Baba-Engle-Kraft-Kroner model, constant conditional correlation (CCC)-GARCH and dynamic conditional correlation (DCC)-GARCH models.

Findings

The results from the VAR-GARCH model indicate unidirectional cross-market mean spillovers from oil market (OILM) to foreign exchange market (FXM). In addition, the results show a positive effect of OILP on XR, suggesting that an increase in OILP appreciates Nigerian currency relative to US dollar and a fall in OILP depreciates it. The authors find that the effects of cross-volatility spillovers between the OILM and FXM are bidirectional. The CCC results indicate positive correlations of returns of 16 per cent between the FXM and OILM. Finally, the DCCs results indicate positive correlations between the two markets since the fourth quarter of 2008 (the world financial crisis period) until the recent period of world oil glut and slow demand for crude oil.

Research limitations/implications

Following the depreciation of the Nigerian currency vis-á-vis US dollar since the onset of the recent world oil glut and lower oil prices, Nigerian authorities should embark on subsidy reform, such as reduction in fuel subsidies. This may enable the release of fiscal resources that may be used to either rebuild fiscal space lost or finance investment in non-oil sectors in order to reduce overdependence on oil income. Lower fiscal revenues, coupled with the risk that crude oil maintains its low price for some time, imply that government should reduce its expenditure, and continue to draw on available accumulated funds from the excess crude account for some time until the real depreciation required for adjustment is achieved.

Originality/value

Studies on volatility spillovers between OILM and FXM are limited in the literature, particularly in Nigerian case. Moreover, the study employs different approaches for broader analysis. These alternative methods, a clear departure from the previous studies, provide comprehensive dynamic nature of the relationship between the FXM and OILM.

Details

African Journal of Economic and Management Studies, vol. 9 no. 2
Type: Research Article
ISSN: 2040-0705

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