INITIAL PREMIUM OF IPOs AND THE IMMEDIATE AFTERMARKET BEHAVIOUR OF INVESTORS: EVIDENCE FROM MALAYSIAN IPOs
Keywords:
IPOs, Malaysian IPOs, Winner’s Curse, Size Effect, Bandwagon EffectAbstract
This paper examines the significance of some ex-ante variables of Malaysian IPOs on the
initial premium and the immediate aftermarket behaviour of investors, during the period
of January 2004 to July 2009. We find that the smaller the company the greater is its
required initial premium because of its perceived higher risk, thus giving support to the
size effect hypothesis. Divergence of opinions among investors regarding the true value of
an IPO is the highest for IPOs listed on MESDAQ. In the absence of informed investors,
the higher the investor demand the higher is the level of divergence of opinion among
investors, and the smaller the size of offer the larger is the divergence of opinion among
the investors. There is a strong positive relationship between the initial premium and the
first-day price spread. Bandwagon effect is more evident in IPOs with low initial demand
and high initial returns. A significant relationship exists between the offer size and the
first-day price spread for the private placement IPOs, and in the case of non-private
placement IPOs, a significant relationship exists between the over-subscription ratio and
the first-day price spread.
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