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Trend of IPO opening prices in the first 20 days after listing. Average opening price is calculated based on the total opening price against 310 companies issued from January 2000 until September 2012. Average offer price is calculated based on the total offer price against 310 companies. (Sources: Bursa Malaysia and DataStream Database)

Trend of IPO opening prices in the first 20 days after listing. Average opening price is calculated based on the total opening price against 310 companies issued from January 2000 until September 2012. Average offer price is calculated based on the total offer price against 310 companies. (Sources: Bursa Malaysia and DataStream Database)

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This paper examines the moderating effect of pre-listing investor demand on the direct influence of lockup provision and institutional investors' participation on flipping activity. By definition, flipping activity is a liquidation of IPOs by new shareholders during the first few trading days. If flipping activity is done substantially, it has pote...

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... it is excessive, flipping activity can destroy firms' value and shareholders' wealth because it creates a sudden and substantial flow of new shares that could drag price of the IPOs down below its fair value (Fishe, 2002;Gounopoulos, 2006). The adverse effect of excessive flipping activity is illustrated in Figure 2, which depicts the trend of the opening price versus the offer price of an IPO. As illustrated in the figure, the average opening prices of 310 IPOs (issued between 2000 and) during the first 20 days after listing are at their highest points on the first and second trading days. ...

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... To date, early performance of an IPO is often evaluated by its initial return or price appreciation in the first few trading days. There is only a limited studies focus on initial trading volume of an IPO to measure the early performance of an IPO in spite of the observation that IPO markets have been reporting a substantially high trading volume during the first few days (Aggarwal, 2003;Ellis, 2006;Che Yahya et al, 2014;Che Yahya and Abdul Rahim, 2015). The scant number of studies and attention on IPO initial trading volume is seen paradoxical given the argument that substantial trading activity in the early aftermarket may cause severe downward pressure on price of the IPO (Fishe, 2002;Krigman et al., 1999) which can impede the IPO to offer desirable profits to investors; impair long-term performance of the IPO and jeopardise the change of IPO company to absorb enough demand when issue for subsequent equity offerings (SEOs). ...
... In other words, past studies often use flipping activity to reflect the high trading volume during the first few trading days. Defining as immediate disposal of shares in the first few trading days by new investors who receive allocations of the shares during the IPO offerings (Che Yahya and Abdul Rahim, 2015;Ellis, 2006), flipping activity is often related to new investors who are extremely profit oriented in nature. They will be most likely to immediately sell their allocated shares upon learning the chance to grab for optimum initial returns. ...
... While most of past studies on the determinants of IPO flipping activity employs prelisting elements (Abdul Rahim et al., 2013;Islam and Munira, 2004;Yong, 2010), pricing effect (Aggarwal, 2003;Bayley et al. 2006;Ellis, 2006;Fishe, 2002;Krigman et al., 1999), signalling hypothesis (Che Yahya et al., 2014;Che Yahya and Abdul Rahim, 2015) and behavioural hypothesis (Chong, 2009;Chong et al., 2009Chong et al., , 2011, this study intend to shift the focus onto winners' curse hypothesis as its main interest to understand IPO trading volume in the early aftermarket (or flipping activity). The winners curse hypothesis describes the adverse selection problem which circulates around the tendency of new uninformed investors who would win or be allocated a large number of IPOs that are not demanded by the informed investors probably due to overpriced IPOs (Amihud et al., 2003), low quality and/or high risk companies (Che Embi, 2010). ...
... To date, early performance of an IPO is often evaluated by its initial return or price appreciation in the first few trading days. There is only a limited studies focus on initial trading volume of an IPO to measure the early performance of an IPO in spite of the observation that IPO markets have been reporting a substantially high trading volume during the first few days (Aggarwal, 2003;Ellis, 2006;Che Yahya et al, 2014;Che Yahya and Abdul Rahim, 2015). The scant number of studies and attention on IPO initial trading volume is seen paradoxical given the argument that substantial trading activity in the early aftermarket may cause severe downward pressure on price of the IPO (Fishe, 2002;Krigman et al., 1999) which can impede the IPO to offer desirable profits to investors; impair long-term performance of the IPO and jeopardise the change of IPO company to absorb enough demand when issue for subsequent equity offerings (SEOs). ...
... In other words, past studies often use flipping activity to reflect the high trading volume during the first few trading days. Defining as immediate disposal of shares in the first few trading days by new investors who receive allocations of the shares during the IPO offerings (Che Yahya and Abdul Rahim, 2015;Ellis, 2006), flipping activity is often related to new investors who are extremely profit oriented in nature. They will be most likely to immediately sell their allocated shares upon learning the chance to grab for optimum initial returns. ...
... While most of past studies on the determinants of IPO flipping activity employs prelisting elements (Abdul Rahim et al., 2013;Islam and Munira, 2004;Yong, 2010), pricing effect (Aggarwal, 2003;Bayley et al. 2006;Ellis, 2006;Fishe, 2002;Krigman et al., 1999), signalling hypothesis (Che Yahya et al., 2014;Che Yahya and Abdul Rahim, 2015) and behavioural hypothesis (Chong, 2009;Chong et al., 2009Chong et al., , 2011, this study intend to shift the focus onto winners' curse hypothesis as its main interest to understand IPO trading volume in the early aftermarket (or flipping activity). The winners curse hypothesis describes the adverse selection problem which circulates around the tendency of new uninformed investors who would win or be allocated a large number of IPOs that are not demanded by the informed investors probably due to overpriced IPOs (Amihud et al., 2003), low quality and/or high risk companies (Che Embi, 2010). ...
... Study on moderating effect of information asymmetry on the relationship between parameters of lockup provision and flipping activity of Malaysian IPOs has been done by Abdul- Rahim & Che Yahya (2015). Lock-up provision is to promote committment among the major Asian Journal of Finance & Accounting ISSN 1946-052X 2017 shareholders as not to sell their shares after the process of the IPO but also it provide signal on the initial return. ...
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This study examines the impact of “offer for sale” by existing shareholders in an IPO on initial aftermarket performance. The “offer for sale” is measured by the proportion of shares offered to public from the sale of the existing shareholdings against the total number of shares offered during IPO. The “offer for sale” activity suggests that proceed from the shares sold to investors at an IPO would go into the pocket of the existing shareholders. That is, the proceed does not actually meet the goals of the IPO which is to raise fund. The new investors expect new cash inflows for the firm to finance new projects and to secure its sustainable growth. IPO firms that go public mainly through “offer for sale” activity are expected to receive less demand during the IPO from the potential investors. In other words, the investors prefer to invest more in IPO firms that offer entirely newly issued shares rather than those that offer a combination of “public issue” and “offer for sale”. Firms which their shares are offered through “offer for sale” activity are predicted to produce poor initial aftermarket performance relative to firms which their shares are newly issued. Employing a sample of 419 Malaysian IPOs issued from January 2000 to December 2015, regression results of this study reveal that firms which their shares are offered highly through “offer for sale” report poor initial aftermarket performance.
... In this study, firm size is proxied by market capitalisation (Bash 2001;Goergen, Renneboog, & Khurshed, 2006;Yung & Zender 2010) and market capitalisation (MKTCAPi) is calculated as the natural log of the total number of shares outstanding multiplied by the IPO offer price (Bash, 2001;Che-Yahya & Abdul-Rahim, 2015;Goergen et al., 2006). The measure used is as follows: ...
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Research aims: This study examines the moderating effect of information asymmetry on the association between the institutional investors’ participation and the initial public offerings (IPO) reactions in the early aftermarket: initial return and flipping activity. Design/ Methodology/ Approach: Using 383 IPOs listed on the Malaysian stock exchange from 2000 to 2013, a hierarchical or the two steps regression analysis is conducted to compare the t-statistics value in the main and the moderated regression models. Research findings: The findings indicate a positive (negative) and significant relationship between the institutional investors’ participation and initial return (flipping activity). However, the signalling role of the institutional investors’ participation in conveying information on the quality of the IPO issuers weakens when the IPO issuers are surrounded by high information asymmetry. Theoretical contributions/ Originality: This study contributes to the IPO literature by providing empirical evidence demonstrating the moderating effect of information asymmetry on the relationship between the institutional investors and the IPO reactions in the early aftermarket. Practitioner/ Policy implications: The findings provide IPO issuers with an understanding on the significance of information transparency (i.e., low information asymmetry) on investors’ reactions. Regulators may also employ the results to set a more stringent monitoring policy on the IPO issuers so as to decrease the likelihood of flipping activities that could erode the initial value of the IPO issuers and wealth of the long-term investors. Research limitations/ Implications: Future studies should be conducted on other IPO markets and also include other signalling devices such as the proportion of shares held by the insiders of the IPO issuer.
... To the best of our knowledge our study is different than other IPO studies in Malaysiaas other researchers by utilising the Malaysian data have concentrated on the trading volume behaviour of the IPO market after lock-up expiry (Zameni and Yong, 2016) or on the performance of an IPO itself (e.g. Abdul-Rahim et al., 2013;Sapian et al., 2013;Che-Yahya and Abdul-Rahim, 2015). Other studies, such as Wan-Hussin (2005), concentrate on owners' participation and level of under-pricing. ...
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This paper examines the effects of substantial shareholders’ trading behaviour on share prices, trading volume and bid–ask spread in relation to the efficient market hypothesis (EMH) around the lock-up expiry for a sample of 379 Malaysian IPOs, between 2001-2011. Our analysis shows that the number of companies with substantial institutional and individual shareholders has increased after the IPO. This indicates that individual and substantial investors are optimistic about the future of the IPO companies in general. In addition, the number of existing substantial individual and institutional shareholders that sold their shares is greater than the existing substantial individual and institutional shareholders that bought shares. That is the reason why we witness an abnormal trading volume and abnormal bid–ask spread, which leads to abnormal returns. The two other categories, ‘new individual investors that came in as substantial shareholders after lock-up expiry’ and ‘new institutional investors that came in as substantial shareholders after lock-up expiry’, show that some investors are still optimistic about the future of these IPO companies. Our analysis shows an increase in trading volume before the lock-up expiry date by substantial shareholders, which is an indicator of illegal insider trading. Consequently, market makers to protect themselves would increase the spread, which results in a price drop. Significant cumulative average abnormal returns show inconsistency about the EMH. The results are vital to provide input into the enforcement of laws to regulate insider trading. This is to strengthen the legal regimen to prevent the influences of insider trading.
... In this study, firm size is proxied by market capitalisation (Bash 2001;Goergen, Renneboog, & Khurshed, 2006;Yung & Zender 2010) and market capitalisation (MKTCAPi) is calculated as the natural log of the total number of shares outstanding multiplied by the IPO offer price (Bash, 2001;Che-Yahya & Abdul-Rahim, 2015;Goergen et al., 2006). The measure used is as follows: ...
Article
Manuscript type: Research Paper Research aims: This study examines the moderating effect of information asymmetry on the association between the institutional investors' participation and the initial public offerings (IPO) reactions in the early aftermarket: initial return and flipping activity. Design/ Methodology/ Approach: Using 383 IPOs listed on the Malaysian stock exchange from 2000 to 2013, a hierarchical or the two steps regression analysis is conducted to compare the t-statistics value in the main and the moderated regression models. Research findings: The findings indicate a positive (negative) and significant relationship between the institutional investors' participation and initial return (flipping activity). However, the signalling role of the institutional investors' participation in conveying information on the quality of the IPO issuers weakens when the IPO issuers are surrounded by high information asymmetry. Theoretical contributions/ Originality: This study contributes to the IPO literature by providing empirical evidence demonstrating the moderating effect of information asymmetry on the relationship between the institutional investors and the IPO reactions in the early aftermarket. Practitioner/ Policy implications: The findings provide IPO issuers with an understanding on the significance of information transparency (i.e., low information asymmetry) on investors' reactions. Regulators may also employ the results to set a more stringent monitoring policy on the IPO issuers so as to decrease the likelihood of flipping activities that could erode the initial value of the IPO issuers and wealth of the long-term investors. Research limitations/ Implications: Future studies should be conducted on other IPO markets and also include other signalling devices such as the proportion of shares held by the insiders of the IPO issuer.
... To the best of our knowledge, this paper is the first empirical research regarding the bid-ask spread reaction (microstructure effect) to the lock-up expiry dates in the Malaysian IPO market. Previous studies on lock-up expiry dates using Malaysian IPO data, such as Che Yahya and Abdul Rahim (2015), Che Yahya et al. (2013), only cover the influence of lock-up provision on the flipping activity of Malaysian IPOs or provide more information on the performance of an IPO. ...
... Companies that are listed on trading boards of the Bursa Malaysia are classified into different sectors that show their main businesses. By delving into the Malaysian literature in the IPOs field, the results show more research on the performance of an IPO itself (Che Yahya and Abdul Rahim, 2015;Abdul Rahim et al., 2013;Sapian et al., 2013) while there is a gap in studies on the effect of expiration of lock-up provisions on the bid-ask spread. However, lock-up provision is compulsory for new issuance companies in Malaysia, but there is a slight difference in length of a lock-up provision in each Board. ...
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This paper examines the lock-up provisions of initial public offerings (IPOs) and their effect on bid–ask spread changes around the lock-up expiry date of 379 Malaysian IPOs, issued during January 2001 to December 2011. The event study approach and the comparison period returns approach (CPRA) by Masulis (1980) are used. The results of the study indicate that investors and market makers are sceptical about the future of the companies before and after the lock-up expiry of some boards and sectors, which results in an increased adverse selection element of the bid–ask spread. The increased adverse selection element of bid–ask spread dominants the trading volume increase around the lock-up expiry and results in share price drop. Consequently, market makers prefer to increase the spread to protect themselves against informed traders.
... To the best of our knowledge, this paper is the first empirical research regarding the bid-ask spread reaction (microstructure effect) to the lock-up expiry dates in the Malaysian IPO market. Previous studies on lock-up expiry dates using Malaysian IPO data, such as Che Yahya and Abdul Rahim (2015), Che Yahya et al. (2013), only cover the influence of lock-up provision on the flipping activity of Malaysian IPOs or provide more information on the performance of an IPO. ...
... Companies that are listed on trading boards of the Bursa Malaysia are classified into different sectors that show their main businesses. By delving into the Malaysian literature in the IPOs field, the results show more research on the performance of an IPO itself (Che Yahya and Abdul Rahim, 2015;Abdul Rahim et al., 2013;Sapian et al., 2013) while there is a gap in studies on the effect of expiration of lock-up provisions on the bid-ask spread. However, lock-up provision is compulsory for new issuance companies in Malaysia, but there is a slight difference in length of a lock-up provision in each Board. ...
Article
Full-text available
This paper examines the lock-up provisions of initial public offerings (IPOs) and their effect on bid–ask spread changes around the lock-up expiry date of 379 Malaysian IPOs, issued during January 2001 to December 2011. The event study approach and the comparison period returns approach (CPRA) by Masulis (1980) are used. The results of the study indicate that investors and market makers are sceptical about the future of the companies before and after the lock-up expiry of some boards and sectors, which results in an increased adverse selection element of the bid–ask spread. The increased adverse selection element of bid–ask spread dominants the trading volume increase around the lock-up expiry and results in share price drop. Consequently, market makers prefer to increase the spread to protect themselves against informed traders.
... By delving into the Malaysian literature in the IPO field, the results provide more information on the performance of an IPO (Che Yahya and Abdul Rahim, 2015;Abdul Rahim et al., 2013;Sapian et al., 2013;Abdul Rahim et al., 2012;Aggarwal, 2003) itself (in both the short and long term), while there is a gap in studies on the effect of the expiration of lock-up periods on price behaviour. On the other hand, Malaysia's financial market is considered to be an ...
Conference Paper
Full-text available
This study aims to investigate the lock-up provisions of initial public offerings (IPOs) and their effect on price changes around the lock-up expiry date of Malaysian IPOs. More precisely, the efficient market hypothesis (EMH) is investigated in relation to the lock-up provision by using the standard event study methodology, and an improved and more robust method proposed by Masulis (1980), called comparison period returns approach (CPRA). The sample comprises 379 Malaysian IPOs, issued from January 2001 to December 2011. The results of the CPRA methodology are consistent with the event study methodology, in which significant abnormal returns are not seen around the lock-up expiry date despite of significant positive trading volume. In general, the findings confirm the semi-strong form of EMH. Furthermore, the results are in line with studies of European markets, but contradict most studies of US markets. The results indicate that whether we incorporate market risk in our analysis or not, the market remains in semi-strong form around the lock-up expiry date.
... The wide investigations on IPO initial returns show that the anomaly are explained by various factors including demand, offer size and firm size (Yong & Isa, 2003). While the abnormal IPO initial returns and its determining factors have received wide support, another IPO anomaly, the abnormally high trading volume during the first few days of IPO listing, has attracted attention only recently (Che- Yahya & Abdul-Rahim, 2015;Ellis, 2006). The recent attention on the anomalous trading behavior on the initial listing days suggest that the anomalies of IPOs are not only attributed by anomalous initial returns but also by the anomalous trading volumes. ...
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Lock-up provision may extend its role as a signaling tool, albeit its practice is mainly to ensure the commitment of major shareholders to the well-being of IPO companies at least during lock-up period. Despite the mandatory lock-up ratio of 45 percent of outstanding shares, the voluntary action of major shareholders which is revealed through higher locked ratios signals some information about the IPO companies, for instance quality of the issuers. The information signaled through the voluntary action elicits different investors’ trading behavior and subsequently performance of IPO in the immediate aftermarket. This paper examines the impact of lock-up provision on two IPO anomalies in the immediate aftermarket; initial return and flipping activity. Employing data of 383 Malaysian IPOs listed from January 2000 to December 2013, multiple regression analysis reveals that lock-up provision (period and ratio) influences flipping activity, more via its committing role instead of signaling role.