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Article
Publication date: 26 August 2021

Waqas Mehmood, Rasidah Mohd-Rashid, Abd Halim Ahmad and Saqib Amin

The purpose of this paper was to examine whether or not the sponsor lock-up ratio, lock-up period, regulation changes and interaction variable (oversubscription [OSR]…

Abstract

Purpose

The purpose of this paper was to examine whether or not the sponsor lock-up ratio, lock-up period, regulation changes and interaction variable (oversubscription [OSR]) affected initial public offering (IPO) initial return.

Design/methodology/approach

A complete sample of 111 listed IPOs in Pakistan stock exchange from 1996 to 2018 was incorporated. Based on the cross-section data, this paper estimated using ordinary least square and quantile least square for robustness. In addition to that, this paper estimated the data using stepwise least square to inspect the signalling aspect of the lock-up ratio, lock-up period and regulation changes on IPO initial return.

Findings

This study showed that the lock-up ratio, lock-up period and regulatory changes had a positive impact on the IPO’s initial return. Furthermore, the assertion of interaction variable (regulation changes × OSR) and (lock-up period × OSR) was a negatively significant factor in influencing the IPO’s initial return. The results of this paper were robust to endogeneity bias.

Practical implications

The finding of this study proposed that sponsors of IPOs can be a strong signal of risk or quality, which was consistent with the signalling theory prediction. Concurrently, investors must be aware of the total proportions of lock-up ratio so that they can estimate the chances of getting the highest initial return on IPOs. From the regulators’ point of view, it is suggested that the lock-up ratio and the lock-up period should be determined with a deeper understanding and incorporated into the equity guidelines as it is evident that these factors are priced by the market.

Originality/value

Studies on the effect of sponsors have always been centred on well-recognized firms. Therefore, using the IPO samples listed in Pakistan, this paper contributes to the IPO literature by investigating the lock-up ratio of the sponsor, the lock-up period and the regulatory changes to the initial IPO return. Additionally, OSR has been introduced as an interaction variable among the sponsors’ lock-up period and regulations changes to explain the ongoing IPO initial return phenomenon.

Details

Pacific Accounting Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 15 June 2021

Ayesha Anwar and Rasidah Mohd-Rashid

The purpose of this paper is to examine the impact of privatized initial public offerings (IPOs) on flipping activity in the Pakistan IPO market.

Abstract

Purpose

The purpose of this paper is to examine the impact of privatized initial public offerings (IPOs) on flipping activity in the Pakistan IPO market.

Design/methodology/approach

This study sampled 95 IPOs listed on the Pakistan stock exchange over the period of 2000 to 2019. The ordinary least square technique and quantile regression were used to examine the impact of privatized IPO on flipping activity.

Findings

The present study finds that privatization affects flipping activity and creates a quality signal in Pakistan’s IPO market. The findings of this study also show that privatized IPOs were subjected to high levels of flipping activity compared to non-privatized IPOs. Additionally, investors’ demand has been found to moderate the relationship between privatized IPOs and flipping activity in Pakistan’s IPO market.

Research limitations/implications

Based on the fact that the sample consists of a combination of privatized and non-privatized IPOs, the results provide valuable insight into factors that may lead to unusual trading behavior/flipping during the first day of listing.

Originality/value

Despite several studies on events (e.g. short- and long-term price performance) around IPO, there is little evidence on how privatized IPOs affect flipping activity, which is a high volume of trading immediately after listing.

Details

Pacific Accounting Review, vol. 33 no. 3
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 5 July 2021

Waqas Mehmood, Rasidah Mohd-Rashid, Ahmad Hakimi Tajuddin and Hassan Mujtaba Nawaz Saleem

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Abstract

Purpose

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Design/methodology/approach

Besides the ordinary least square’s method, this study used quantile least squares as a robust approach and stepwise regression for further analysis to investigate the underpricing phenomenon in Pakistan. Data of 84 IPOs listed on Pakistan Stock Exchange from January 2000 to December 2018 were collected to determine the impact of Shariah-compliant status and Shariah regulation on IPO underpricing.

Findings

Results of the study show that Shariah-compliant status has a negative relationship but Shariah regulation has a positive relationship with IPO underpricing. Hence, it is contended that Shariah-compliant firms have lower asset volatility and uncertainty than non-Shariah-compliant firms because of less information asymmetry, resulting in lower underpricing. These Shariah-compliant firms provide signals of high-quality IPOs as they must comply with the strict guidelines issued by the Securities Exchange Commission of Pakistan in addition to being considered as amicable by investors. Further, this study suggests that investors are more attracted to Shariah-compliant firms than non-Shariah-compliant ones.

Research limitations/implications

This study’s offers limited consideration of nonfinancial and financial characteristics that could influence the decision of investors to subscribe to IPOs. Besides, future studies could consider the screening benchmarks; for instance, debt and cash may explain the intensity of IPO initial return in Pakistan.

Originality/value

The present work empirically investigated the influence of Shariah-compliant status and Shariah regulation on IPO underpricing in Pakistan’s IPO market, which has been scarcely covered in the existing literature.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 9 July 2018

Rasidah Mohd-Rashid, Mansur Masih, Ruzita Abdul-Rahim and Norliza Che-Yahya

The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price.

Abstract

Purpose

The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price.

Design/methodology/approach

This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model.

Findings

The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price.

Research limitations/implications

This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant.

Originality/value

This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 1 February 2021

Chui Zi Ong, Rasidah Mohd-Rashid and Kamarun Nisham Taufil-Mohd

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

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Practical implications

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

Originality/value

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

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 4
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 18 October 2021

Ayesha Anwar, Rasidah Mohd-Rashid, Norliza Che Yahya and Chui Zi Ong

This study aims to examine the impact of sponsors and democratic government on the flipping activity of initial public offerings (IPOs).

Abstract

Purpose

This study aims to examine the impact of sponsors and democratic government on the flipping activity of initial public offerings (IPOs).

Design/methodology/approach

Based on the sample of 95 IPOs listed on the Pakistan Stock Exchange between January 2000 and December 2019, this study used multiple cross-sectional regression to examine the relationship between sponsors and democratic government on flipping activity.

Findings

The findings indicate a significant negative association between sponsors and the flipping activity of IPOs. Sponsor(s) signal quality by trying to share accurate information about company values. As a result, the confidence of rational investors in the company’s future prospectus increases and they hold their shares for future gains, which reduces the flipping activity. Also, democratic government, along with sponsors' participation, provides investors with liquidity immediately after listing.

Practical limitations/implications

The findings of this study have implications for investors as they may assist them make informed decisions about whether or not to invest in an IPO with high sponsor(s) ownership. In addition, issuers should consider the disclosure of sponsor information(s) as such information may directly affect the first day’s trading volumes.

Originality/value

To the best of the authors’ knowledge, this is the first research study that explores the correlation between sponsors and democratic government and flipping activity of IPO. This study is important for investors and issuers.

Details

Management Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 30 July 2021

Rasidah Mohd-Rashid, Ahmad Hakimi Tajuddin, Karren Lee-Hwei Khaw and Chui Zi Ong

This study aims to examine the changes in equity guidelines and initial returns in the Malaysian initial public offering (IPO) market.

Abstract

Purpose

This study aims to examine the changes in equity guidelines and initial returns in the Malaysian initial public offering (IPO) market.

Design/methodology/approach

The study uses cross-sectional data over 16 years from 2000 to 2016. It uses ordinary least squares for the baseline model and incorporates an interaction term, quantile regression, quadratic term, break test and logit regression model for further analysis.

Findings

The results support the propositions that lockup provisions signal commitment and demand increase initial returns. The revision in the Bumiputera equity requirement means that issuers no longer need to discount offer prices to entice investors. Finally, the revised Sharīʿah-compliance screening requirement ensures that stocks are better in quality and more transparent, leading to a higher demand that drives prices upwards.

Research limitations/implications

This study’s findings provide insights into how issuers can secure good subscriptions. Besides, policymakers should ensure that firms disclose the required information in their prospectuses.

Originality/value

This study adds to the body of knowledge on whether and how the regulatory requirements affect IPO initial returns.

Details

Accounting Research Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 5 March 2020

Waqas Mehmood, Rasidah Mohd-Rashid and Abd Halim Ahmad

The purpose of this paper is to examine the effects of pricing mechanism on initial public offerings (IPOs) oversubscription in Pakistan.

Abstract

Purpose

The purpose of this paper is to examine the effects of pricing mechanism on initial public offerings (IPOs) oversubscription in Pakistan.

Design/methodology/approach

This study used cross-sectional data to analyse 85 listed IPOs on the Pakistan stock exchange during the period of 2000-2017 to assess hypotheses related to influential determinants of IPO oversubscription. Accordingly, ordinary least square, robust regression and quantile regression approaches were applied in this study to evaluate the factors that influenced oversubscription.

Findings

The outcome displayed pricing mechanism is negatively significant with an oversubscription of IPOs. This indicates firms using the fixed-price mechanism signalled higher information asymmetry and uncertainty in their value. Thus, investors are aware that they will be offset with underpricing, and it is expected the demand will be higher for the particular IPOs.

Research limitations/implications

This study is entirely focused on the available information of prospectus that should not be ignored by potential investors at the time of subscription of IPO. Therefore, the study contributes to extending the available literature in signalling theory whereby issuers should consider using the book-building pricing mechanism in enhancing the efficiency of the IPO offer price during the listing.

Originality/value

This paper provides evidence for the determinants of the IPO oversubscription.

Details

Pacific Accounting Review, vol. 32 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

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Article
Publication date: 28 August 2020

Waqas Mehmood, Rasidah Mohd-Rashid, Norliza Che-Yahya and Chui Zi Ong

This study investigated the effect of pricing mechanism and oversubscription on the heterogeneity of investors' opinions on initial public offering (IPO) valuation.

Abstract

Purpose

This study investigated the effect of pricing mechanism and oversubscription on the heterogeneity of investors' opinions on initial public offering (IPO) valuation.

Design/methodology/approach

Besides the ordinary least square method, this study incorporated robust least square, stepwise least square and quantile regression methods to investigate the aftermarket behaviour of investors using the price range on the first day of trading of 82 IPOs listed on the Pakistan stock exchange.

Findings

The aftermarket behaviour of investors was found to be significantly influenced by the pricing mechanism, oversubscription, financial leverage, political stability and the risk of IPO, whereas control of corruption showed an insignificant impact. Concurrently, the findings showed that pricing mechanism and oversubscription played a crucial role in determining the intensity of investors' heterogeneous opinions at high levels of significance.

Originality/value

Pricing mechanism and oversubscription not only signal the quality of IPOs but also provide an important means for reducing the information asymmetry associated with new listings. Based on the literature review, it was found that both the pricing mechanism and oversubscription have yet to be explored in investigating the aftermarket behaviour of investors using the price range in the Pakistan IPO market. This study suggests that book building pricing mechanism and oversubscription are associated with lower heterogeneity in investors’ opinions at a high level of significance.

Details

Review of Behavioral Finance, vol. 13 no. 5
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 28 May 2020

Chui Zi Ong, Rasidah Mohd-Rashid and Kamarun Nisham Taufil-Mohd

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

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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

Originality/value

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

Details

Managerial Finance, vol. 46 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

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