Intended use of IPO proceeds and initial returns

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nurwati A. Ahmad-Zaluki ◽  
Bazeet Olayemi Badru
Keyword(s):  
Initial Public Offerings ◽  
Capital Expenditure ◽  
Critical Role ◽  
Ordinary Least Squares ◽  
Working Capital ◽  
Growth Opportunities ◽  
Content Type ◽  
Negatively Associated ◽  
Debt Repayment ◽  
Intended Use

Purpose This study aims to investigate the effects of the intended use of initial public offerings (IPO) proceeds that is disclosed in the prospectus on IPO initial returns. Design/methodology/approach A sample of IPOs listed on Bursa Malaysia from 2005 to 2015 is used. The intended use of IPO proceeds is categorised into three uses, namely, growth opportunities, debt repayment and working capital. In addition to ordinary least squares regression, the study applies a more sophisticated and robust approach using the quantile regression technique. Findings The results show that the intended use of IPO proceeds for growth opportunities and working capital is positively associated with IPO initial returns, whereas debt repayment is negatively associated with IPO initial returns. When the intended use of IPO proceeds for growth opportunities is further expanded into capital expenditure (CAPEX) and research and development (R&D), the intended use of IPO proceeds for CAPEX is positively associated with IPO initial returns, whereas R&D is negatively associated with IPO initial returns. Research limitations/implications These findings suggest that intended use of IPO proceeds provides useful information about IPO initial returns and investors can use this information as guidance to make informed decisions. In addition, regulatory authorities should pay close attention to the amount allocated to each intended use of IPO proceeds as this may play a critical role in the success of a company and the economy. Originality/value This study gives new empirical evidence on the desire and motivations of IPO and the usefulness of designated use of IPO proceeds disclosed in the prospectus in explaining IPO initial returns.

scholarly journals Decomposition of intended use of IPO proceeds: Evidence from Malaysia

2021 ◽  
Vol 23 (1) ◽  
pp. 76
Author(s):  
Bazeet Olayemi Badru
Keyword(s):  
Content Analysis ◽  
Research And Development ◽  
Analysis Of Variance ◽  
Capital Expenditure ◽  
Investment Decisions ◽  
Descriptive Statistics ◽  
Working Capital ◽  
Growth Opportunities ◽  
Debt Repayment ◽  
Intended Use

The main objective of the study is to identify what Malaysian IPO issuers indicate as intended use of IPO proceeds and the use that has the highest amount of allocation. In order to achieve the objective of the study, a manual content analysis of 221 IPO prospectuses issued during the period of 2005-2015 were considered. Based on the manual content analysis, the data were analysed using descriptive statistics and analysis of variance (ANOVA). The results indicate that the three major intended uses of IPO proceeds in Malaysian IPO market are growth opportunities (53.90%), debt repayment (29.12%) and working capital (12.87%). However, growth opportunities and debt repayment have greater amount of allocation than working capital over the sample periods. Additionally results show that Malaysian IPO issuers expend more on capital expenditure and expansion rather than research and development in terms of growth opportunities. Further analysis in terms of the frequencies of number of IPO issuers indicate that number of issuers that have a designated amount for working capital (95%) supersede issuers in the growth opportunities group (90%). These results suggest that issuers can consider intended use of IPO proceeds information as a signal mechanism and potential investors can as well consider the information useful before making their investment decisions.

The new capital raised in IPOs

2017 ◽  
Vol 43 (9) ◽  
pp. 966-981 ◽  
Author(s):  
Chuntai Jin ◽  
Tianze Li ◽  
Steven Xiaofan Zheng ◽  
Ke Zhong
Keyword(s):  
Research And Development ◽  
Initial Public Offerings ◽  
Design Methodology ◽  
Capital Expenditure ◽  
Operating Performance ◽  
Working Capital ◽  
Content Type ◽  
Public Offerings ◽  
Regression Tests

Purpose The purpose of this paper is to answer the following three questions about the new capital raised in initial public offerings (IPOs): why do some IPO companies raise a lot of new capital while some others do not? Where do the IPO companies use the new capital they raise in IPOs? How does the use of new capital affect the operating performance of IPO companies? Design/methodology/approach Matching firm approach, univariate and regression tests. Findings This paper finds that companies with higher research and development (R&D) spending, higher capital expenditure, lower working capital and more long-term debt tend to raise more capital in IPOs. These firms also spend more on R&D and capital expenditure. The results also suggest that the more the new capital firms raise in IPOs, the lower operating performance they have in subsequent years. However, firms spending more new capital on R&D and capital expenditure seem to perform better. Originality/value These results help us understand the behavior of IPO firms.

Audit committee characteristics and the moderating effect of Malaysian code of corporate governance on IPO liquidity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amal Mohammed Al-Masawa ◽  
Rasidah Mohd-Rashid ◽  
Hamdan Amer Al-Jaifi ◽  
Shaker Dahan Al-Duais
Keyword(s):  
Corporate Governance ◽  
Initial Public Offerings ◽  
Audit Committee ◽  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Least Squares Regression ◽  
Content Type ◽  
Code Of Corporate Governance ◽  
The Impact ◽  
The Relationship

Purpose This study aims to investigate the link between audit committee characteristics and the liquidity of initial public offerings (IPOs) in Malaysia, which is an emerging economy in Southeast Asia. Another purpose of this study is to examine the moderating effect of the revised Malaysian code of corporate governance (MCCG) on the link between audit committee characteristics and IPO liquidity. Design/methodology/approach The final sample consists of 304 Malaysian IPOs listed in 2002–2017. This study uses ordinary least squares regression method to analyse the data. To confirm this study’s findings, a hierarchical or four-stage regression analysis is used to compare the t-values of the main and moderate regression models. Findings The findings show that audit committee characteristics (size and director independence) have a positive and significant relationship with IPO liquidity. Also, the revised MCCG positively moderates the relationship between audit committee characteristics and IPO liquidity. Research limitations/implications This study’s findings indicate that companies with higher audit committee independence have a more effective monitoring mechanism that mitigates information asymmetry, thus reducing adverse selection issues during share trading. Practical implications Policymakers could use the results of this study in developing policies for IPO liquidity improvements. Additionally, the findings are useful for traders and investors in their investment decision-making. For companies, the findings highlight the crucial role of the audit committee as part of the control system that monitors corporate governance. Originality/value To the authors’ knowledge, this work is a pioneering study in the context of a developing country, specifically Malaysia that investigates the impact of audit committee characteristics on IPO liquidity. Previously, the link between corporate governance and IPO liquidity had not been investigated in Malaysia. This study also contributes to the IPO literature by providing empirical evidence regarding the moderating effect of the revised MCCG on the relationship between audit committee characteristics and IPO liquidity.

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Faisal Alnori ◽  
Abdullah Bugshan ◽  
Walid Bakry
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Cash Holdings ◽  
Order Theory ◽  
Working Capital ◽  
Pecking Order Theory ◽  
Content Type ◽  
Financial Firms ◽  
Operating Cash Flow ◽  
The Difference

PurposeThe purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.Originality/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

Impact of disclosure of risk factors on the initial returns of initial public offerings (IPOs)

2018 ◽  
Vol 31 (1) ◽  
pp. 46-62 ◽  
Author(s):  
Shaista Wasiuzzaman ◽  
Fook Lye Kevin Yong ◽  
Sheela Devi D. Sundarasen ◽  
Noor Shahaliza Othman
Keyword(s):  
Risk Factors ◽  
Initial Public Offerings ◽  
Ordinary Least Squares ◽  
Investment Risk ◽  
Least Squares Regression ◽  
Risk Disclosure ◽  
Content Type ◽  
Public Offerings ◽  
The Individual ◽  
Overall Risk

Purpose When a firm goes public for the first time, its prospectus serves as an important reference for investors. It is required by regulation that the risk factors which have significant influence on the business be disclosed in the prospectus. The purpose of this study is to analyze how disclosure of these risk factors influences the initial returns of initial public offerings (IPOs). Design/methodology/approach To do this, a sample of 96 Malaysian new equity offerings (IPOs) from year 2009 to year 2013 is used. Ordinary least squares regression technique is used to regress initial returns against risk disclosures. Aside from overall risk disclosure, individual dimensions of risk (internal risk, external risk and investment risk) are also considered. Findings Results of the regression analyses reveal a direct relationship between the IPO initial returns and the disclosure of risk. Overall risk disclosure is found to be highly significant in influencing initial returns. However, further investigation into the individual group of risks shows that only investment risk is highly significant in influencing IPO initial returns. Originality/value The results found in this study are interesting as, unlike prior studies, it is shown that disclosures of internal and external risks are not significant in influencing investors’ actions possibly because of their generalizability, whereas disclosures related to investment risks are significant. Equity of firms which disclose more of its risk factors can be expected to generate higher initial returns.

Working capital management and firm profitability: a meta-analysis

2017 ◽  
Vol 9 (1) ◽  
pp. 34-47 ◽  
Author(s):  
Harsh Pratap Singh ◽  
Satish Kumar ◽  
Sisira Colombage
Keyword(s):  
Meta Analysis ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Negatively Associated ◽  
Cash Conversion Cycle ◽  
Prior Literature ◽  
Narrative Literature Review ◽  
The Relationship

Purpose The purpose of this study is to quantitatively aggregate the findings of prior literature on the effect of working capital management (WCM) on corporate profitability using the meta-analysis technique developed by Hunter et al. (1982). Design/methodology/approach A set of 46 research articles that directly studied the relationship between WCM, and profitability was analyzed for the purpose. In addition to overall meta-analysis, a detailed subgroup study was also conducted to test whether the differences in results are due to moderating effects related to different profitability proxies, economic development of a specific country and size of the firms under study. Findings The findings of this meta-analysis confirm that WCM is negatively associated with profitability, which means an aggressive WCM policy leads to higher profitability. Overall, and in all the subgroup studies, the cash conversion cycle was found to be negatively associated with profitability. Originality/value Unlike narrative literature review papers, this meta-analysis provides quantitatively aggregate evidence on the relationship of WCM and firms’ profitability. To the best of authors’ knowledge, no previous meta-analysis paper is published on the topic.

Human resource executives and post-IPO firm growth

2018 ◽  
Vol 31 (7) ◽  
pp. 1401-1418
Author(s):  
Carrie A. Belsito ◽  
Christopher R. Reutzel ◽  
Jamie D. Collins
Keyword(s):  
Human Resource ◽  
Initial Public Offerings ◽  
Firm Growth ◽  
Ordinary Least Squares ◽  
Top Management ◽  
Least Squares Regression ◽  
Firm Level ◽  
Content Type ◽  
Public Firms ◽  
Test Study

Purpose The purpose of this paper is to examine the relationship between human resource (HR) executive representation in top management and the growth of newly public firms. It draws upon research on strategic leadership, strategic HR management and Penrose’s theory of firm growth to consider the role of HRs executives in addressing demands placed upon top managers in the pursuit of firm growth. This study attempts to extend the focus of research on the influence of HR executives on organizational outcomes Design/methodology/approach In order to test study hypotheses, this study analyses data from a sample of US newly public firms that underwent initial public offerings (IPO) during the 2007 calendar year. Study data were analyzed using ordinary least squares regression in order to test study hypotheses. Findings This study provides general support for study hypotheses. First, HR executive presence in top management was found to be positively related to post-IPO firm growth. Second, upper echelon size and the number of firm employees were found to weaken the positive effect of HR executive presence in top management on post-IPO firm growth. Research limitations/implications As a consequence of study design, the results found in this study may be limited with respect to their external validity. Therefore, researchers and practitioners are encouraged to use caution before generalizing study findings to other contexts. Practical implications This study provides implications for top management team staffing and the pursuit of firm growth. Newly public firms appear to benefit in terms of firm growth by including HR executives in top management. The benefits of doing so appear to be reduced for newly public firms as the size of their upper echelons and number of employees increase. Originality/value This study extends research on the firm level consequences of HR executive presence in top management as well as research on factors which influence firm growth.

An empirical analysis of the determinants of the cash conversion cycle in Kenyan listed non-financial firms

2014 ◽  
Vol 4 (2) ◽  
pp. 175-196 ◽  
Author(s):  
David Mutua Mathuva
Keyword(s):  
Least Squares ◽  
Fixed Effects ◽  
Capital Expenditure ◽  
Ordinary Least Squares ◽  
Return On Assets ◽  
Cross Sectional ◽  
Content Type ◽  
Internal Resources ◽  
Financial Firms ◽  
Cash Conversion Cycle

Purpose – The purpose of this paper is to investigate whether non-financial firms listed on the Nairobi Securities Exchange (NSE) exhibit a target cash conversion cycle (CCC). The study also examines the speed of adjustment to the target CCC and the factors that influence corporate decisions on the optimum length of the CCC. Design/methodology/approach – Based on a sample of 33 publicly traded firms on the NSE for the period between 1993 and 2008, cross-sectional and time series analyses were carried out on the data comprising 468 firm-years. A target adjustment model was developed to examine the significant determinants of the CCC. Various regression approaches including ordinary least squares, fixed effects and two-stage least squares estimation models were used in data analysis. Findings – The results, which are robust for endogeneity, show that non-financial firms listed on the NSE maintain a target CCC. Further analysis reveals that these firms adjust to the target CCC at a slower rate. The results show that the determinants of the CCC include both firm-specific and economy-wide factors. Specifically, the study establishes that older firms and firms with more internal resources maintain longer CCC. Moreover higher return on assets, investment in capital expenditure and growth opportunities have a significant negative association with the CCC. The results also show a significant positive relation between inflation and the CCC. Practical implications – The study establishes that other than internal firm-specific factors, the CCC is also influenced by inflation, which is an external, economy-wide factor. Originality/value – To the best of the author's knowledge, this is the first study to examine whether listed non-financial firms in a frontier market maintain a target CCC.

Geographical diversification and corporate liquidity in Malaysia: a quantile regression approach

2020 ◽  
Vol 32 (2) ◽  
pp. 125-146
Author(s):  
Shaista Wasiuzzaman
Keyword(s):  
Quantile Regression ◽  
Cash Holdings ◽  
Developed Countries ◽  
Ordinary Least Squares ◽  
Working Capital ◽  
Firm Level ◽  
Ols Regression ◽  
Content Type ◽  
Corporate Liquidity ◽  
Geographical Diversification

Purpose This paper aims to examine the effect of geographical diversification on corporate liquidity in Malaysian firms. Liquidity is represented by both cash and working capital. Design/methodology/approach Data for this study is collected from a total of 735 firms over a period of five years, from 2010 to 2014, resulting in a total of 2,904 firm-year observations. The effect of geographical diversification on the cash and working capital of the firms is analyzed by using the ordinary least squares (OLS) with standard errors adjusted for firm level clustering and the quantile regression (QR) analyses. Control variables which represent the characteristics of the firms are also considered. Findings Analysis using the OLS regression technique indicates that geographical diversification has a highly significant positive influence on corporate cash holdings, while the influence of working capital is negative and its significance is only at the 10 per cent level. However, when QR is used to analyze the relationships, it is found that geographical diversification is only significant in positively influencing cash holdings for firms with low cash holdings, but the relationship is insignificant at high levels of cash holdings. Additionally, working capital is significantly influenced by geographical diversification at high levels of working capital but not at low levels. Originality/value To the author’s knowledge, this is the first study to analyze the influence of geographical diversification on liquidity by considering both cash and working capital. The effect of diversification on liquidity is mostly studied in developed countries, whereas this study is focused on a developing country. Additionally, this study uses QR to analyze relationships at different levels rather than at aggregate level as done in OLS regression analysis.

Characteristics and determinants of the board of directors of growing Spanish SMEs going public

2019 ◽  
Vol 26 (3) ◽  
pp. 363-380 ◽  
Author(s):  
María-José Palacín-Sánchez ◽  
Francisco Bravo ◽  
Nuria Reguera-Alvarado
Keyword(s):  
Board Of Directors ◽  
Initial Public Offerings ◽  
Ordinary Least Squares ◽  
Board Structure ◽  
Least Squares Regression ◽  
Going Public ◽  
Content Type ◽  
The Board Of Directors ◽  
Study Characteristics ◽  
The Moment

Purpose The purpose of this paper is to examine the characteristics and the determinants of board structure in small- and medium-sized enterprises (SMEs) in the process of going public within the continental European corporate system. Design/methodology/approach These issues are explored through the study of all the initial public offerings (IPOs) in the Spanish equity market for growing SMEs, and the statistical methodologies of ordinary least squares regression and stepwise regression are applied. Findings The results show that board size is larger than the minimum level established in law and that boards are composed of a majority of non-executive directors. In addition, the determinants of firm characteristics of board structure are firm age, level of financial leverage, and ownership structure. Practical implications This research is significant since its findings should help entrepreneurs reflect on which board structure is most appropriate for this new stage of the life cycle of their company as a listed firm. This evidence is also of interest for regulators and investors, who can, therefore, better understand board structures of SMEs at the moment of IPO. Originality/value This paper is the first to study characteristics and determinants of the board of directors of growing SMEs at the moment of going public. This study implies a step forward in research into the governance of small business and IPO literature, since the results differ from the evidence found for large company IPOs and contribute towards the debate regarding the need to consider the context and the type of firm in corporate governance studies.

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