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Article
Publication date: 10 April 2017

Mohammed Abdullah Ammer and Nurwati A. Ahmad-Zaluki

This paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of…

Abstract

Purpose

This paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of Malaysian initial public offering (IPO). Specifically, the authors investigated the two environments of regulation (mandatory versus voluntary) to draw some conclusions regarding the benefits of regulating disclosure of management earnings forecasts.

Design/methodology/approach

A sample of 111 Malaysian IPOs listing on the Main Market of Bursa Malaysia from January 1, 2004 to February 29, 2012 was used. The paper uses both univariate and multivariate statistical analyses on this sample of IPOs.

Findings

The empirical results of these multivariate regressions indicated that disclosure regulation has positive and significant impact on the bias and accuracy of management earnings forecasts disclosed in IPO prospectus. In general, the study results suggest that using disclosure regulation to improve the quality of IPO earnings forecasts can be, to some extent, an effective strategy.

Practical implications

The findings of this study have important implications for regulators and investors. The findings can provide them some relevant insights on the improvements to the earnings forecasts accuracy and trends of the forecast (optimistic or pessimistic) after the change from mandatory to voluntary disclosure. Thus, the authorities may learn whether this change is an effective policy or whether the regime of mandatory disclosure was better for IPO companies and should be reversed.

Originality/value

This study is regarded as the first attempt to investigate the impact of reforms in disclosure regulation on the quality of management earnings forecasts of IPO prospectuses in a developing nation such as Malaysia. In spite of this, the paper focuses on a single country, and it contributes significant insights to the debate about the credibility of IPO management earnings forecasts.

Details

Journal of Financial Reporting and Accounting, vol. 15 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 7 August 2017

Mohammed Abdullah Ammer and Nurwati A. Ahmad-Zaluki

Presently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit…

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Abstract

Purpose

Presently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit committees. This study aims to examine the impact of gender diversity in audit committees on the accuracy of management earnings forecasts disclosure in initial public offering (IPO) prospectuses.

Design/methodology/approach

The study sample comprises 190 Malaysian companies issuing IPOs that transformed into public companies during the period 2002-2012. Earnings forecasts accuracy (quality) is proxied by absolute forecast error and the study model is developed based on the frameworks of the signalling theory, the agency theory and the resource-dependence theory.

Findings

The study proposes that female directors introduce a set of specific features in the boardroom that serve to improve investor protection and efficient monitoring of management. However, findings reveal an insignificantly positive relationship between gender diversity in audit committees and absolute forecast error, which shows that more female directors in audit committees could translate into more errors and less accuracy in earnings forecasts.

Practical implications

Considering the recent regulatory developments that encourage the number of women on the board of directors, the findings obtained have significant implications for policymakers. The study findings can also be invaluable to investors, investment analysts, market players and researchers.

Originality/value

The composition of the board of directors and audit committees in terms of gender plays a significant role in the promotion of effective corporate governance practices. This study is one of the pioneering studies that examines the advantages of gender diversity in the board of directors. It is also the first study to extend IPO literature by investigating the role of gender diversity in audit committees in the enhancement of accurate management earnings forecasts included in the IPO prospectuses.

Details

Gender in Management: An International Journal, vol. 32 no. 6
Type: Research Article
ISSN: 1754-2413

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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: 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: 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

Keywords

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Article
Publication date: 25 June 2021

Hassan Mujtaba Nawaz Saleem and Nurwati A. Ahmad-Zaluki

The paper aims to assess the performance of investors that are discriminated based on their risk-appetite who intend to invest in listed Sharia-compliant (SC) stocks to…

Abstract

Purpose

The paper aims to assess the performance of investors that are discriminated based on their risk-appetite who intend to invest in listed Sharia-compliant (SC) stocks to maximize their portfolios’ wealth through two different models (i.e. regime-switching [RS] and non-RS).

Design/methodology/approach

Study period (i.e. November 18, 2015–May 31, 2019), well described in two distinct volatility-related bull-regime and bear-regime, is divided into in-sample and out-sample where Rs. 1.00 is invested on the out-sample start date. Each investor’s cumulated wealth forecasted through different models is checked daily throughout the out-sample period, and then, analyzed based on investors’ cumulated ending wealth, and Sharpe ratio (SR) is obtained through different models.

Findings

The ending wealth of risk-averse and risk-neutral investors obtained through RS-models increased 5.27 times while that of risk-taker investors increased 5.13 times. However, ending wealth obtained through non-RS models remained far low. The SR remained unchanged among investors. However, the SR of RS models (i.e. 1.0867) is higher than that of non-RS models (i.e. 0.8681). Overall, RS model-based investments outperformed in all categories of investors.

Practical implications

The study helps the investor during the process of portfolio diversification in their asset(s) selection and limited capital apportionment decisions. It also helps market regulators in formulating regulations and the policymakers in articulating/implementing policies that may protect the stakeholders form consequent disasters, particularly when market switches regimes.

Originality/value

The uniqueness stems from its focus on risk-appetite discriminated investors’ portfolio wealth maximization issue examined through technical analysis using two completely distinct models in the emerging market’s listed SC stocks.

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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: 7 December 2020

Yasir Abdullah, Nurwati A. Ahmad-Zaluki and Nazahah Abd Rahim

The purpose of this paper is to review the current status of research works on corporate social responsibility disclosure (CSRD) in both non-Asian and Asian countries. It…

Abstract

Purpose

The purpose of this paper is to review the current status of research works on corporate social responsibility disclosure (CSRD) in both non-Asian and Asian countries. It seeks to provide an overview of existing literatures to facilitate future research.

Design/methodology/approach

The present study used the content analysis of 64 empirical research papers from 41 countries from 1990 to 2020 to show the rapid development of and global focus on CSRD. Various CSRD measures had been used in previous researches on the extent and quality of disclosure.

Findings

Company characteristics, namely, company size, age, profitability, industry, share price performance and corporate governance mechanisms and their impact on CSRD, were investigated. Crucial variances between the determinants of CSRD in non-Asian and Asian countries were also reviewed. In non-Asian countries, especially the advanced ones, specific stakeholders such as regulators, the environment, shareholders, ownership and media are considered very significant in the disclosure of CSR information. Meanwhile, in Asian countries, CSRD is more affected by external strength and stakeholders, which include international capital markets, creditors, the environment, international media and ownership.

Research limitations/implications

The determinants of CSRD, namely, community, workplace, environment and marketplace issues received very little pressure from the public. This paper suggests that there is a need for more studies examining CSRD in non-Asian and Asian (emerging) countries.

Social implications

Business organisations in non-Asian and Asian countries should take social practices into consideration in their CSRD decision-making. This review highlights the significance of merging organisational and social activities.

Originality/value

This study adds value by examining CSRD aspects that were not reviewed in previous studies on CSRD in non-Asian and Asian countries. This study provides a comprehensive review of the determinants of CSRD in both non-Asian and Asian countries.

Details

Journal of Global Responsibility, vol. 12 no. 1
Type: Research Article
ISSN: 2041-2568

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Article
Publication date: 28 September 2012

Nurwati A. Ahmad‐Zaluki

The purpose of this paper is to investigate the gender composition of the board of directors of Malaysian initial public offering (IPO) companies. This study also examines…

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1684

Abstract

Purpose

The purpose of this paper is to investigate the gender composition of the board of directors of Malaysian initial public offering (IPO) companies. This study also examines the business case for having women on boards.

Design/methodology/approach

Using a sample of 228 IPO companies that went public during the period 1999‐2006, this study tracks the changes in the gender composition of these companies prior to the IPO year, IPO year and three‐year post‐IPOs. This study also tracks the changes in the gender composition between the pre‐IPO period and some 5 to 12 years later after the IPOs for a subsample of 89 companies that appear as top 500‐companies on the Malaysian Stock Exchange (Bursa Malaysia) in 2011. The compounded buy‐and‐hold returns method is used to measure the post‐IPO company performance.

Findings

This study finds that female representation as board of directors in 228 Malaysian companies prior to the IPO is only about 8 percent. This percentage is almost similar for the subsequent four years (IPO year and three‐year post‐IPOs). By using a subsample of 89 companies that appear as top 500‐companies in 2011, the percentage of female directors increases only 2.5 percent from the pre‐IPO year. However, the increment is not statistically significant. An extended analysis on the business case for women on boards reveals that greater percentage of female representation leads to lower long run underperformance. This underperformance is much lower for companies having more foreign ethnic female representation.

Research limitations/implications

The results of this study suggest that there is still a long way to realize the benefits of having female directors in Malaysian companies. Malaysia needs to create an environment that realizes the benefits of having women in the top management levels.

Originality/value

This research contributes to the existing literature on gender especially in the context of IPO companies. This is the first comprehensive study on gender composition using Malaysian IPOs data. Prior studies on gender mainly focus on established listed companies.

Details

Gender in Management: An International Journal, vol. 27 no. 7
Type: Research Article
ISSN: 1754-2413

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Article
Publication date: 6 June 2016

Mohammed Abdullah Ammer and Nurwati A. Ahmad-Zaluki

Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of…

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Abstract

Purpose

Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of underwriter’s market share and spread on the underpricing of IPOs; and second, it investigates the effect of management earnings forecasts bias and accuracy on the underpricing of IPOs.

Design/methodology/approach

A sample of 190 Malaysian IPOs listing on the main market of Bursa Malaysia from January 1, 2002 to February 29, 2012 was used and collected data were analyzed through univariate analysis and pooled ordinary least squares regression.

Findings

The empirical evidence shows that IPOs underwritten by underwriters as having high market share and charging low underwriting spread experience higher level of underpricing. The paper also finds that IPOs issued more biased earnings forecasts are related with severe underpricing. Finally, this paper reveals that the more accurate the earnings forecasts are, the more minimized will be the asymmetric information and hence, the less will be IPO underpricing.

Practical implications

The paper has some implications for policy makers, investors and underwriters. First, this study offers some insights for policy makers who are responsible for Malaysian financial markets current reforms. Further, knowing the importance of the economic outcomes of the earnings forecasts on underpricing for policy makers, they may adopt the findings in their discussion of costs of litigation and potential modifications in the requirements of issuing earnings forecasts. For the investors, findings may improve their understanding of equity valuation and for the underwriters, it would assist them in identifying underwriting cost.

Originality/value

This paper is considered the first study to extend IPO literature by investigating the relationships between underwriter’s market share, underwriter’s spread, earnings forecasts bias, earnings forecasts accuracy and IPO underpricing in an emerging country, such as Malaysia.

Details

International Journal of Managerial Finance, vol. 12 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

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