CHAPTER 1 INTRODUCTION
5.1.4 Comparison Between Time Periods
Based on the results shown in Table 23 above, it can be seen that significant factors are different between Singapore and Malaysia across the entire time period followed in the study, including the split period of 2007 to 2011 and 2012 to 2016. It can also be seen that there are more significant factors affecting the underpricing of IPOs in Singapore Exchange than in Bursa Malaysia. This may be attributed to the existing market differences between the two stock exchanges, such as the market age. It is known that Singapore Exchange is an older market than Bursa Malaysia. With this, an assumption can be made that Singapore Exchange is a more established market in terms of how information is reflected on the pricing of the stocks, therefore suggesting that Singapore may have a more efficient market. Furthermore, the two exchanges are both highly industrialized markets. In fact, the most frequent industry in Singapore Exchange and Bursa Malaysia as seen in Table 29 and Table 31 (see Appendix B) is the Industrials industry, encompassing 42.86% and 26.09%, respectively.
Variables Underpricing (Mean%)
Communication Services (x16) -2.2%
Consumer Discretionary (x11) -37.6%
Consumer Staples (x12) 61.9%
Energy (x8) 28.4%
Financials (x14) -25.7%
Health Care (x13) 27.8%
Industrials (x10) 10.2%
Information Technology (x15) 48.3%
Materials (x9) 42.8%
During the periods 2007 to 2016, the determinants which have a significant effect on the underpricing of IPOs in Singapore are the Consumer Discretionary industry (+) and Offering Size (-). This means that out of all the industries in Singapore Exchange, the Consumer Discretionary industry has the most significant impact on the underpricing of IPOs, specifically contributing a positive effect on the degree of underpricing in IPOs.This means that there is a larger degree of underpricing in IPOs belonging to this industry. This industry significance can be attributed to the increasing returns and popularity among the technology and consumer-discretionary industry shares which have caused benchmarks across different stock markets to increase in 2016 according to Zacks Equity Research (2016). Meanwhile, Firm Size (+) resulted to be the only determinant that had a significant effect on the underpricing of IPOs in Malaysia during this period. This means that the bigger the issuing company is in terms of its assets, the larger is the degree of its IPO underpricing. This relationship is contradictory with the findings of Dell’Acqua et. al. (2015) and Mai (2011) which both showed a significant negative relationship between firm size and underpricing. This may be due to the assumption that investors will be taking in less risk if they purchase shares from larger companies because of the conjecture that these companies are stable enough. On the other hand, this relationship is consistent with the findings in the study done by Islam and Ahmad (2010) when they investigated the underpricing of IPOs in the Chittagong Stock Exchange. This may be a strategy done by large firms in order to raise more capital with the use of public money to fund their operations.
In the 2007 to 2011 split period, Singapore and Malaysia don’t have any common significant factors. For Singapore, the Consumer Discretionary industry still has a significantly positive impact on IPO underpricing, similar to the 2007 to 2016 relationship as discussed
to have significant relationships with IPO underpricing during this period. Offering size and underpricing resulted in a negative relationship with each other, which means that there is a lower level of underpricing that exists in IPOs with a larger number of shares issued. This relationship is consistent with the findings of Abraham (2015) where the high average offering size was used to explain the lower level of underpricing of IPOs in Malaysia during the study period of 2009 to 2014, which may be due to the fact that risk exposure of the firm is reduced as offering size is increased. The Real Estate industry, like the Consumer Discretionary industry, showed a larger degree of underpricing in Singapore during this time compared to the other industries. This may be attributed to the 2008 global financial crisis which involved a stock market crash due to the bursting of the housing bubble at the time. Due to this, demand for real estate properties went down, and as a way of encouraging more investors in properties to make up for the losses incurred, real estate stocks were underpriced (Global Property Guide, 2009).
Meanwhile, for Malaysia, firm age is the only significant determining factor for IPO underpricing during this time, exhibiting a positive relationship with each other. This implies that older firms tend to issue more underpriced IPO shares.
As for the 2012 to 2016 split period, Singapore has offering price (-) and the Consumer Staples industry (+) as its significant factors for IPO underpricing. Offering price and underpricing resulted in a negative relationship with each other, which means that there is a lower level of underpricing that exists in IPOs with higher offering prices. The Consumer Staples industry showed a positive relationship with the underpricing of IPOs in this period which means that IPOs belonging to this industry had higher levels of underpricing during this time. During the global financial crisis that happened in 2008, a lot of markets got heavily affected by this event and industry performances went down. However, Consumer Staples stocks still performed well due to consistent demand from the public despite the economic
downturn spread around the world (Demos, 2008). This positive relationship between Consumer Staples and underpricing of IPOs during this period may be attributed to the fact that Consumer Staples stocks were reported to be hitting a record high in 2016 after investors continuously transferred their investments from other failing industries to this industry (Yang, 2016). Whereas, Malaysia only has the firm size (+) as its significant determinant for underpricing, similar to the findings in the 2007 to 2016 time period.
Table 23.
5.2 Impact of Level of Underpricing on Long-run Performance