Chui Zi Ong, Rasidah Mohd-Rashid, Ayesha Anwar and Waqas Mehmood
The main purpose of this study is to examine the disclosure of earnings forecasts in firms' prospectuses to explain investor demands or, in other words, oversubscription rates of…
Abstract
Purpose
The main purpose of this study is to examine the disclosure of earnings forecasts in firms' prospectuses to explain investor demands or, in other words, oversubscription rates of Malaysian initial public offerings (IPOs).
Design/methodology/approach
Ordinary least squares and robust methods were used to examine cross-sectional data comprising 466 fixed-price IPOs reported for the period from January 2000 to February 2020 on Bursa Malaysia.
Findings
The results showed that IPOs with earnings forecasts obtained higher oversubscription rates than those without earnings forecasts. IPOs with earnings forecasts provide value-relevant signals to prospective investors about the good prospects of firms, resulting in an increase in the demand for IPO shares. For the IPO samples listed during the global financial crisis (GFC) period, IPOs with earnings forecasts had negative impacts on the oversubscription rates. These results were robust to quantile methods and the two-stage least squares method.
Research limitations/implications
The research findings provide fresh information for investors regarding the importance of earnings forecasts as a trustworthy signal of a firm’s quality when making share subscription decisions.
Practical implications
The regulator is advised to encourage issuers to include earnings forecasts in their prospectuses since such forecasts help to increase the demand for IPOs.
Originality/value
This study contributes to the literature by offering empirical evidence regarding the signalling impact of earnings forecast disclosures on investor demands for Malaysian IPOs. Moreover, this study provides evidence demonstrating the impact of earnings forecast disclosures on oversubscription rates of Malaysian IPOs during the GFC period.
Details
Keywords
Waqas Mehmood, Rasidah Mohd-Rashid, Chui Zi Ong and Yasir Abdullah Abbas
The objectives of this study are twofold. First, it intends to investigate the symmetric link between initial public offering (IPO) variability and the determinants of the stock…
Abstract
Purpose
The objectives of this study are twofold. First, it intends to investigate the symmetric link between initial public offering (IPO) variability and the determinants of the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment. Second, this study intends to examine the asymmetric link between IPO variability and the aforementioned determinants, namely the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment.
Design/methodology/approach
Data from 1992 to 2018 were gathered from the country of Pakistan in order to achieve the above objectives. Augmented Dickey–Fuller (ADF) and Phillips Perron (PP) unit root tests were employed to determine the data's stationarity properties. The Auto Regressive Distributive Lags (ARDL) model was utilized to examine the symmetric links, and the Non-Linear Auto Regressive Distributive Lag Model (NARDL) was employed to determine the asymmetric links. While the long-run co-integration was examined using the ARDL bound test, the short-run dynamics were tested using the error correction method (ECM).
Findings
The macroeconomic variables of the stock market index, treasury bill rate, inflation, GDP growth rate and foreign direct investment are found to pose significant short-run and long-run symmetric and asymmetric effects on IPO variability. These results indicate the significance of the aforementioned variables in enhancing IPO variability. The findings also demonstrate the typical reactions of inflation, GDP and FDI towards negative and positive shocks in IPO variability and inflation. This evidence implies that Pakistan's poor capital market development is reflected in the country's weak macroeconomic factors. At the same time, the reduced IPO variability in the country also reflects the lack of confidence among prospective issuers and investors due to Pakistan's weak macroeconomic indicators.
Originality/value
This is the first study of its kind to properly investigate the symmetric and asymmetric effects of the macroeconomic variables on Pakistan's IPO variability.