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The purpose of this study is to examine the influence of underwriter reputation on the valuation of Malaysian initial public offerings (IPOs).

This study employed cross-sectional multiple regression models to analyse the relationship between underwriter reputation and IPO valuation that included 466 IPOs listed on Bursa Malaysia from 2000 to 2017.

The results revealed that underwriter reputation had a significant negative association with IPO valuation. Firms that engaged the services of reputable underwriters had their IPO offer prices set lower than the intrinsic values during the listing. After incorporating firms' size, this study found a positive relationship between underwriter reputation and IPO valuation. Big firms (high quality) hired reputable underwriters for certification purposes as issuers were aware that the cost of hiring a reputable underwriter would be justified by increased transparency after listing. Therefore, firms that engaged reputable underwriters had approximately fair values since issuers assumed that the price would be close to the intrinsic value following enhanced transparency post-listing.

Future studies should focus on other non-financial factors, such as auditor reputation.

The present study provides new insights into the certification role of underwriters in valuing IPOs in the Malaysian market.

Outlines previous research on the underpricing of initial public offerings (IPOs), describes the institutional framework for IPOs in Malaysia and presents a study of long run Malaysian IPO performance using 1992‐1996 data on 258 IPOs, classified into growth or value portfolios. Explains the methodology and presents the results, which show that value IPOs outperform growth IPOs, while both outperform the market. Finds their cumulative market adjusted return (averaged at 41.7 per cent) positively correlated with book‐to‐market equity, earnings‐to‐price, cashflows‐to‐price and the time lag between close of application and actual listing; and negatively related to the IPO price and size. Briefly considers consistency with other research and the market implications.

This study aims to investigate the valuation accuracy of Malaysian initial public offerings (IPOs) by using price-multiple methods.

Cross-sectional data including 467 IPOs listed on the Malaysian stock exchange were used for the period of 2000–2017. This study used univariate ordinary least square (OLS) regression to analyse the relationship between IPOs’ price-multiples and comparable firms’ price-multiples. The test of valuation accuracy was conducted via computing valuation errors by segregating the sample into two groups: fixed-price IPOs and book-built IPOs. Furthermore, multiple OLS regression was used to examine the influence of IPO valuation on underpricing.

The findings of the results suggested that IPOs price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) multiples were positively related to the median P/E, P/B and P/S multiples of five comparable firms matched by industry and revenues. The P/S multiple was shown to be the most significant valuation method, specifically in book-built IPOs. The findings indicated that those firms that had a lower valuation in comparison to the comparable firms were inclined to underprice their IPOs to allure investors to subscribe IPOs. In addition, book-built IPOs that had fair valuations were inclined to generate higher initial returns for investors.

The findings of this study observed implications for underwriters in avoiding the mis-valuation issue by considering the book-building mechanism.

This study attempted to explore the suitability of the valuation method to value IPOs in Malaysia.

This paper aimed to explore the effect of a regulatory change pertaining to earnings forecasts disclosure from a mandatory to a voluntary regime on the valuation of Malaysian initial public offerings (IPOs).

The study employed ordinary least square (OLS) regression and quantile regression to analyse the impact of disclosure of earnings forecasts regulation on the valuation of IPOs which comprised 458 IPOs reported for the period 2000–2017 on Bursa Malaysia.

This paper revealed that the regulatory change in forecasted earnings disclosure from a mandatory to a voluntary regime, effective from 1 February 2008, had a negative impact on the valuation of IPOs. The regime change did not improve the transparency of firms issuing IPOs. In fact, the absence of forecasted earnings information in most IPO prospectuses caused ex ante uncertainties to increase. Voluntary disclosure, however, had a significant positive relationship with the valuation of the IPOs issued during the global financial crisis period (2008–2010). Firms concealed their poor qualities by excluding forecasted earnings information from their prospectuses in order to have a fair valuation.

The findings may be used by policymakers as guidance in improving the existing regulation regarding the disclosure of forecasted earnings.

This paper provides new insight on the effect of a regulatory change pertaining to earnings forecasts disclosure from a mandatory to a voluntary regime on the valuation of Malaysian IPOs. It also provides evidence that the regulatory change of earnings forecast disclosure affects the IPOs' values listed during the global financial crisis period.

The purpose of this paper is to examine the effects of R&D manipulation on stock valuation for periods around IPOs. Insider manipulation is the difference in actual R&D change minus predicted R&D change where a negative difference indicates R&D underinvestment.

This study is designed to build on prior IPO research that has found reduced R&D expenditures when insiders lower their ownership. The paper derives an R&D manipulation variable that measures underinvestment in R&D. This variable is used in a regression methodology to test its influence on: IPO stock valuation at various points in time and post‐IPO price changes relative to the offer price.

The paper discovers that greater underinvestment in R&D is associated with greater values during the IPO stock valuation process. This association is reversed when the paper looks at short‐term valuation based on market prices. Only for bubble period IPOs do the paper finds poorer valuations for the long‐term. Larger insider ownership decreases lead to poorer valuations regardless of the period of occurrence. Greater R&D underinvestment and insider ownership decreases both lead to less underpricing.

Like prior research, the paper assumes that knowledge about the change in R&D is known at the time of the offering. Interpretations for long‐run results can be tenuous due to unexpected changes that occur over time.

Investors should note that managers are able to set higher offer prices when they inflate earnings by underinvesting in R&D. Buying at an inflated offer price with R&D manipulation leads to losses in the aftermarket with these losses associated with IPOs that occur during a bubble period.

Misrepresentation during the IPO valuation process affects those who buy shares at inflated prices. This raises ethical questions about the behavior of those involved in the issuance process.

This study is unique in testing how R&D manipulation and changes in insider ownership proportions impact the: IPO valuation process, post‐IPO valuation, and changes in the stock price over time relative to the offer price.

The purpose of this paper is to shed light on the relationship between family involvement and Initial Public Offering (IPO) value in the Italian context.

Based on a unique hand-collected data set, the authors test the hypotheses on companies that went public between 2000 and 2011, making inference on 113 firms using OLS hierarchical regressions. The authors quantify the IPO value from an outside investors’ perspective with two measures to proxy for IPO value in the short-term and apply robustness checks for long-run performance. In a stewardship framework, the authors examine demographic variables including family firm status, family involvement in managerial positions and family generations.

The results suggest that family firm status positively influences IPO value, that greater family involvement corresponds to higher IPO value and lastly, that the beneficial effect of family control is mainly attributable to the first generation. The results are robust to alternative specifications of each phenomenon.

As a single-country study, the results refer exclusively to the Italian context and thus the evidence provided may not automatically be generalized to IPOs of comparable equity markets.

This study expands current knowledge by showing how investors “price” family ownership in an IPO; furthermore the authors assess how certain characteristics of family firms affect the IPOs (e.g. family involvement and intergenerational).

The purpose of this paper is to examine the effects of prestige signals measured by the reputations of the underwriter, auditor and board size on the heterogeneity of investor belief about the true value of IPO in the Malaysian IPO market.

This study employs a sample of 281 IPOs issued between January 2000 and December 2015. The relationship between prestige signals and investor heterogeneity, measured by first-day price range of IPOs, is analysed using cross-sectional regression and quantile regression technique.

Of the three prestige signals, the findings show that only underwriter reputation and board size have significant negative relationships with IPO first-day price range. This implies that IPOs underwritten by reputable underwriters and issuing firms with larger board members have lower heterogeneity of opinion among investors. The findings also show that underwriter and auditor reputations have negative relationship with IPO initial return, suggesting that these prestige signals help to reduce IPO under-pricing, which is a direct cost of raising capital for the issuing firm. Furthermore, the results indicate that offer price, initial return, over-subscription ratio and private placement are associated with higher first-day price range. However, the findings on offer size suggest that larger IPO offer size is associated with lower first-day price range. Overall, the findings suggest that firm’s prestige signals reduce opinion heterogeneity among investors and that lower investors’ heterogeneity leads to lower IPO under-pricing cost for issuing firms.

Despite the importance of underwriter, auditor and board member reputations in signalling firm’s quality and reducing the level of information asymmetry of the listing firm’s issues, research on the effects of prestige signals on investor heterogeneity remains unexplored. This study investigates the role of prestige signals in influencing investors’ heterogeneity in Malaysia. The authors conjecture that underwriter, auditor and board member with higher reputations are associated with lower levels of opinion heterogeneity among IPO investors.

This study aims to highlight the accuracy, performance and selection of the IPO valuation methods in the Islamic Republic of Iran’s emerging market.

The authors performed accurate ex ante evaluations based on a pre-IPO data set obtained from valuation institutions. This study considered valuation methods through correlations, Mann–Whitney U tests and regression analysis, using a sample of 83 IPOs from January 2017 to March 2021.

The authors found that the dividend discount model (DDM) was the most popular in Iran. Even after controlling firm characteristics and market circumstances, the IPO price was highly correlated to pre-IPO reports’ estimates. The results showed that firms’ age, size and profitability affected the selection of valuation methods. The valuers did not apply forward P/E in a volatile market. Firm size affected the weights assigned to free cash flow to the firm, and the valuers considered the asset-in-place intensity to determine the weights of DDM, P/E and net asset value, and they mainly used the P/E to value old firms. Finally, this study estimated the accuracy of the pre-IPO report at 61% and found the highest accuracy to be associated with DDM.

IPO pricing in emerging markets constitutes a more significant dilemma than in developed markets. This paper provides empirical evidence of IPO pricing focusing on valuation methods used in the context of an emerging market – the Islamic Republic of Iran.

This paper aims to study the underpricing phenomenon of initial public offerings (IPOs) of 355 Indian companies issued from 2007 to 2019. The research question this paper empirically examines is whether Indian corporate executives deliberately underprice IPOs from its fair value to attract investors, thereby causing an abnormal spike in the prices on the listing day. The findings of this study challenge a commonly held notion of leaving money on the table by IPO issuing companies. Of the overall average listing day returns of 17%, the deliberate premarket underpricing component is found to be mere 5.3%, while the remaining price fluctuation is, inter alia, a result of market momentum along with the unmet demands of impatient investors.

Following Koop and Li (2001), this study uses Stochastic frontier model (SFM) to study a routine anomaly of disparity between the primary market price (i.e. IPO issue price) and the secondary market price (listing price). The jump in the issue price observed on a listing day is decomposed into deliberate premarket underpricing component that reflects the extent of managerial manipulation and the after-market misvaluation component attributable to information asymmetry and prevailing market volatility.

This paper uses SFM to bifurcate initial returns into deliberate underpricing by managers and after-market mispricing by noise traders. This study finds that a significant part of the initial return is explained through after-market mispricing. This study finds that average initial returns are 17%, deliberate premarket underpricing is 5.3% and after-market mispricing averages 11.9%.

This study can isolate underpricing done at the premarket by estimating a systematic one-sided error term that measures the maximum predicted issue price deviation from the offered price. Consequentially, the disaggregation of initial returns may be especially informative for retail investors in planning their exit strategy from an IPO by separating the strength of the firm's fundamentals and its causal relationship with the initial returns. Substantial proportion of after-market mispricing implies that future research should focus on factors causing after-market mispricing. As underlying causes are identified, tailor-made policy responses can be formulated to benefit investors.

This paper has empirically validated that initial return is a mix of both components, i.e. deliberate underpricing and aftermarket mispricing. This disaggregation of initial returns can prove helpful for investors in planning their exit strategy. This study can help investors to become more aware of the importance of the fundamentals of the firm and its causal relation with the initial returns. This information in turn can help reduce the information asymmetry amongst investors and help them lessen the costs of adverse selection.

A large number of research studies on IPO pricing find overwhelming evidence of underpricing in public issues. This research attempts to decompose the extent of underpricing into deliberate underpricing and after-market mispricing, thereby supplementing the existing literature on the IPO pricing puzzle. To the best of the authors’ knowledge, this study is the first contribution to the literature on initial return decomposition for the Indian capital markets.

Conventional wisdom says that the price reduction stocks experience at expiration of the initial public offering (IPO) lockup period is due to relaxation of selling constraints. Findings from more recent literature question this explanation. The purpose of this paper is to examine a different cause for this price drop, IPO overvaluation.

Using the IPO overvaluation measures of Purnanandam and Swaminathan (2004), the authors examine IPO lockup period stock return differences between stocks in the highest and lowest overvaluation quintiles.

The authors show that the IPO lockup period price reduction is strongly related to overvaluation. Zero-investment portfolios long in the lowest overvaluation quintile and short in the highest overvaluation quintile of IPO firms have positive significant returns.

IPO investors can use the technique to identify firms likely to underperform in the IPO lockup period, potentially avoiding bad investments.

This is the first study to link IPO lockup period stock returns to IPO overvaluation, providing evidence on the impact of both overvaluation and short-selling constraints on stock returns in the IPO lockup period.