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.
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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.
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Rizky Yudaruddin, Dadang Lesmana, Yanzil Azizil Yudaruddin, Norliza Che Yahya and Ayesha Anwar
This study aims to investigate the market reaction in the cyclical consumer sector to the US–Houthi conflict. Furthermore, the authors explore the impact of this conflict on…
Abstract
Purpose
This study aims to investigate the market reaction in the cyclical consumer sector to the US–Houthi conflict. Furthermore, the authors explore the impact of this conflict on market reactions by market and region.
Design/methodology/approach
Using an event study methodology, this paper analyze a sample of 1,973 companies. This paper used multiple event windows, including a 15-day period before the invasion announcement as the preinvasion event and a 15-day period after the invasion announcement as the postinvasion event.
Findings
The authors find that pre the event of war, the market tended to show a positive reaction, but toward the event day until post event, the market in the consumer cyclical sector actually reacted significantly negatively to the conflict, especially in developed and developing markets. The Asia and Pacific market is the market that feels the most negative impact from the US–Houthi conflict compared to other markets. Furthermore, in terms of industry types in the consumer staples sector, Food and Tobacco and Personal and Household Products and Services felt the negative impact, although the majority of all industries reacted significantly negatively.
Originality/value
This study focuses on the US–Houthi conflict, an event that has not been extensively studied in the context of market reactions. Unlike previous research, this study specifically examines the impact of the conflict on the consumer cyclical sector, emphasizing the significance of trade route disruptions, particularly the Suez Canal, on global markets. By providing insights into how such geopolitical events affect different regions and industries, this study offers valuable guidance for policymakers and managers in mitigating the adverse effects of geopolitical risks on market stability.
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Ahmad Hakimi Tajuddin, Rasidah Mohd Rashid, Karren Lee-Hwei Khaw and Norliza Che Yahya
The purpose of this paper is to investigate the effects of Shariah-compliant status and the presence of information asymmetry on investors’ demand for initial public offerings…
Abstract
Purpose
The purpose of this paper is to investigate the effects of Shariah-compliant status and the presence of information asymmetry on investors’ demand for initial public offerings (IPOs) in Malaysia.
Design/methodology/approach
The data regarding 260 IPOs dated for a duration of 11 years were acquired from the websites of Bursa Malaysia and Malaysian Issuing House. In evaluating the association between IPO oversubscription and the independent variables in this study, multivariate and quantile regression analyses were implemented.
Findings
It was found that Shariah-compliant status (DSHARIAH) had a significant positive relationship with IPO oversubscription. With this, it was indicated that Shariah-compliant status gains investors’ interests in subscribing to IPOs as these shares could be distributed to a wider group of investors. In the case of the proxies of information asymmetry, although firm size posed significant effects on IPO oversubscription, the effects were negative. Meanwhile, institutional investors posed significant positive effects on IPO oversubscription. Furthermore, it was indicated from the negative effects of firm size that less subscription is received by large firms which are perceived to possess lower information asymmetry from the investors. This is owing to the less underpricing provided by the issuers for their IPOs. However, it was indicated from the significant positive association between institutional investors and IPO oversubscription that the participation in the IPO among institutional investors would enhance the enthusiasm of investors for a specific stock and increase the probability of IPO oversubscription. With this, the winner’s curse hypothesis was supported.
Research limitations/implications
It is recommended that future studies investigate the compliance aspect, specifically the financial and nonfinancial aspects which may affect investors’ decision-making process for their investment.
Practical implications
With the availability of this study’s indicators in the prospectus, the findings of this study have provided useful insights for an issuer and underwriter to ensure a good subscription of its issuance.
Social implications
The findings of this study have provided further comprehension to investors regarding the essential information found in the prospectus during the decision-making process done for IPO subscription.
Originality/value
To the best of the authors’ knowledge, this is one of the first articles which have proven the effects of Shariah-compliant status and the presence of information asymmetry on IPO investors’ demand.
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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.
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Mohd Yaziz Bin Mohd Isa and Mahalakshmi Suppiah
In this research, arbitrage opportunity is tested between the yield rates computed by the NSS model, and the computed forward rates between conventional and Islamic finance to see…
Abstract
Purpose
In this research, arbitrage opportunity is tested between the yield rates computed by the NSS model, and the computed forward rates between conventional and Islamic finance to see any arbitrage opportunity. The research questions are the conventional and Islamic finance yields at the same level and equal to each other to avoid arbitrage? Whether conventional and Islamic forward rates differ significantly and thus create any arbitrage opportunity. This study aims to find the presence or absence of arbitrage between conventional and Islamic finance yield rates.
Design/methodology/approach
The NSS model is the latest model in calculating yield and forward rates. In the method the error level is minimized so expected yield rate and given yield rate both converged (Vahidin and Anastasios, 2020). When they converged it gives the researchers all six months’ yield rates. For the Nelson Siegal method, all the six months’ yield rates are available and these yield rates can be used to compute the forward rates.
Findings
The authors concluded there is a significant difference between the conventional yield rate and the Islamic yield rate. It suggests that because there are significant differences, its suggest arbitrage is possible. So anyone interested in making a guaranteed profit. The conventional yield rates are lower; hence, anyone can borrow from the conventional finance system and invest the money in the Islamic financial system because investments are getting higher rates of income in the form of yield rate in Islamic Finance. So, one can make money because of this difference. Statistically, it is possible to make money, but practically, the authors observed the difference, however it is very meager. The arbitrage opportunity between Islamic finance and conventional finance will not affect the economy because the significant difference is too small. The disturbance in the arbitrage opportunity due to the values is very meager and insignificant.
Research limitations/implications
This research does not address the derivative contracts’ role in risk management; future researchers could take up this as another research.
Practical implications
This research will be beneficial for financial institutions, especially institutional investors. Besides, this research will help the regulators and investment bankers in assisting where and future losses especially bond portfolios in conventional finance and Islamic finance. This study will also contribute and help the asset manager of mutual funds in the mutual fund industries.
Social implications
In effect, this research will strengthen the financial system, capital market and bond market, derivative contracts such as options contracts, futures contracts, swap contracts and forward contracts will use computed forward rates for assessing future losses (value at risk [VaR]) and to hedge them (Balakrishnan, 2020).
Originality/value
As this topic is rarely studied it will increase the literature present in this domain.