An Examination of the Underpricing of Initial Public Offering in Kuala Lumpur Stock Exchange

• Main Author: Norita, Mohd. Nasir
• Format: Thesis
• Language: English; English
• Published: 1994
• Subjects: HG Finance
• Online Access: http://etd.uum.edu.my/628/; https://repository.essex.ac.uk

Previous studies have documented that initial public offerings (IPOs) are typically underpriced. This dissertation has two major objectives. First to test the existence of underpricing in the Kuala Lumpur IPOs. The study by Dawson (1987) is extended by industry-specific sub samples, with the aim to determine whether different business sectors show a significant difference in underpricing levels. Second to study Rock’s (1986) information asymmetry model of underpricing. The findings show that underpricing phenomena of IPOs occurs in the Malaysian market, with the industrial sector contributing the most to the overall underpricing and is found to be significantLy different from other sectors. Using the proxies for ex-ante and ex-post uncertainty, the study tends to explore the relationship between the level of underpricing and the uncertainty surrounding the new issues. The results support the proposition by Beatty & Ritter (1986) that the level of underpricing is positively related to the uncertainty surrounding the new issues.