Determinants of oversubscriptions of initial public offerings (IPOs) in Malaysia

The main objective of this thesis is to examine the factors influencing oversubscription of initial public offerings (IPOs) in Malaysia. This study proposes eight pre-listing information variables, namely growth opportunity, Bumiputera equity ownership, revised Bumiputera equity requirement, Shariah-compliant status, revised Shariah-compliant guidelines, cash, debt and pricing mechanism. The focus on such variables is motivated by the fact that the Malaysian market has different institutional and legal settings which might influence the oversubscription phenomenon. In formulating the hypotheses, signalling, agency and winner’s curse theories are relied upon. Multiple regression analyses were carried out to test the relationship between oversubscription and independent variables based on 410 IPOs listed on Bursa Malaysia during the period 2000 to 2015. This study shows that the utilisation of proceeds for investment purposes (growth opportunity) has a positive influence on investors subscribing to the IPOs.
Meanwhile, the 30% Bumiputera equity requirement policy also is observed to have had a positive influence on oversubscription rate. It is believed that the issuers offer their IPOs at a larger discount in order to attract Bumiputera investors. However, the reverse occurs when the Government relaxed the requirements from 30% to 12.5%, effective July 2009, which reduced the oversubscription of IPOs. Besides, Shariah-compliant status and revised Shariah-compliant guidelines show a positive influence on oversubscription as the shares could be distributed to a wider group of investors. In addition, cash and debt are noted to have negative influence on oversubscription. However, the mix mechanism does not affect oversubscription. The findings of this study provide useful insights to an issuer to assure good subscription of its issuance as these indicators are available in the prospectus. For investors, information from this study would enable them to make better investment decisions when subscribing to IPOs, particularly the retail investors.