Privatisation initial public offerings in Malaysia: initial premium and long-term performance

This study addresses four major issues related to privatisation initial public offers (PIPOs) and other initial public offers (IPOs) in Malaysia. First, an analysis of initial excess returns suggests that, on average, Malaysian IPOs are underpriced and PIPOs offer significantly higher initial returns than other IPOs. Second, regression based analysis reveals that over-subscription, market volatility, proportion of shares sold, underwriters reputation, and ex ante risk together explain over three-quarters of the variation in the excess returns offered by Malaysian PIPOs. However, this model can only explain 10% and 36% of other IPOs and the whole sample respectively. Third, the analysis of secondary market performance suggests that neither PIPOs nor other IPOs significantly outperform/ underperform the market over three years. Further analysis reveals that the IPOs with higher initial return underperform the market while those with low initial return outperform. Finally, the paper confirms that IPOs underwritten by reputed underwriters are significantly better long-term investments as compared to the IPOs underwritten by less reputed underwriters.