Pricing behavior of new listings on Bursa Malaysia during 1991-2000 / Chong Fen Nee... [et al.]

The equity market is an integral part of the capital market, enabling companies to raise capital through the issuance and sale of shares and other financial derivatives. It also enhances the marketability and liquidity of these financial instruments by providing the market for their trading. The past thirty years have witnessed numerous companies worldwide raising capital from the equity market, mostly through initial public offerings. (IPOs) IPOs may be undertaken in the form of new issues (the issuance of new shares for sale), offers for sale (the sale of previously issued shares by the owners of private companies) or a combination of new issues and offers for sale. The rapid increase in the number of IPOs worldwide are attributed to a number of factors. These included the growing awareness among private companies of the benefits of going public, the desire for larger capital bases to capitalize on opportunities, the efforts by national governments either to establish a national capital market or to enhance the efficiency and liquidity of the existing markets to enhance economic growth, the acceleration of the process of privatization of government entities and the transition from socialist to market-oriented economies in many countries. Specific reasons for IPOs include the desire of companies to reduce the cost of new funds and to reduce the level of
leverage. For the original owners of private companies, the reasons for undertaking IPOs include the desire to enhance the liquidity of their investments, realize part of the value of their investments and reduce their exposure to risk through reduction of their equity stake.
Research interest on IPOs was motivated by three commonly observed phenomena pertaining to the price performance of new listings, namely the initial or short-run underpricing, the "hot issue' market phenomenon and the long-run under performance. The initial underpricing phenomenon referred to the positive difference between the price of new listings on the first trading day with the offer price. The 'hot issue’ market phenomenon relate to the observed pattern of recurring cycles in which periods of high positive initial returns were associated with increasing numbers of IPOs while periods of low positive and negative initial returns were.