CHAPTER 1 INTRODUCTION
4.4 Methodological Limitations
5.1.1 Descriptive Statistics
Tables 13 and 15 are the descriptive statistics from the year 2007 to 2016 for Singapore Exchange and Bursa Malaysia, respectively. These reflect the variables that are considered in establishing the determinants of underpricing in the two stock exchanges. Furthermore, tables 14 and 16 are the summary of firm industries for SGX and KLSE for the period of 2007 to 2016.
As seen in Table 13, the average underpricing for an IPO from 2007 to 2016 in SGX is at 194%. This is certainly far from the findings of Abraham (2015) where the average rate is 20.25% which covers the period 2009 to 2014. However, there is a wide range for this variable.
The minimum level of underpricing is at -59%. This was the case when Transit-Mixed Concrete’s stock price fell by 41% on the first day of trading. On the other hand, the maximum level is at 1387% as Forise International’s stock price increased by 1,488%. This data shows the high volatility and risk in the market for IPOs, and this can also be depicted in the study done by Abraham (2015) where the data resulted to have a huge gap between the minimum and maximum level of underpricing. Likewise, the standard deviation for the underpricing level is 405.98% of which is very high. By looking into the specific MAAR during the period 2007-2011, underpricing is notably higher at 305.39% as compared to the later period which only has a 21.395% underpricing level. This was due to the fact that there were several listed IPOs that were highly underpriced during the period 2007-2011 which ranged from -59% to 1,387% where Forise International Ltd. had the highest level of underpricing as the raw return was at 1,420%.
On the other hand, in 2012-2016, the underpricing level of IPOs ranged from -19% to 177%
wherein the highest raw return was 171% for JB Foods LTD. With that, since the level of underpricing in IPOs is evident in SGX during the period of 2007 to 2016, we reject 01.
Based on the ownership structure found in Table 13, the average rate is at 33% with a range from 5.14% to 100%. Moreover, the average firm size in this data is 227.76 million USD and this starts from 9.98 million USD up to 1963.6 USD millions. In terms of the firm age, the average is at 6 years where it ranges from 0 to 41 years. The offering size is at an average of 2.5 million USD that has a scope of USD0.27 million to USD11.6 million. Consequently, the average financial leverage is 36.46 which ranges from 0 to 201 and is lower than in KLSE. As regards the ROE, the average is 24.78% that spans from -3.4% to 90.4% and the median is at 40.6% which is both higher than KLSE. The average offer price per share in this data is USD0.36 with a range from 0.15 to 1.1 USD.
Table 13.
As seen in Table 14, there are a total of 11 industries and 46 IPOs in SGX from the year 2007 to 2016. Roughly 30% of the newly listed firms are under the industry industrials based on the GICS. Moreover, the industries of consumer discretionary and consumer staples are the subsequent industries to have high percentages, which respectively comes around 20% and
Variables Mean Median Min Max Std. Dev
Ownership Structure (%) 32.965 26.055 5.14 100.00 19.795 Firm Size (in USD millions) 227.76 87.100 9.9800 1963.6 364.51 Firm age (in years) 6.3478 3.0000 0.0000 41.000 9.1657 Offering Size (in USD millions) 2.5320 1.2410 0.27375 11.563 3.0439
Financial Leverage 36.457 15.000 0.0000 201.00 49.842
ROE (%) 24.783 40.60 -3.4000 90.400 22.729
Offering Price (in USD) 0.35683 0.26645 0.14600 1.0950 0.22338
MAAR % (y) 194.26 11.516 -59.201 1387.0 405.98
17%. On the other hand, communication services, financials, health care, and information technology industries have the lowest percentage, specifically having about 2% each.
Additionally, the industries of energy, materials, real estate, and utilities have low percentages having around 7% on energy, materials, and real estate and 4% on utilities.
Table 14.
Based on Table 15, it can be denoted that the average underpricing level for an IPO during the period of 2007 to 2016 in KLSE is at 15%. Based on Khin et al. (2017), from 1998 to 2008 in KLSE, they found that the initial underpricing is at 13.4% whereas the adjusted return considering the market return is at 9.4%. With that, the level of underpricing KLSE is anticipated as it is evident in past studies done by Khin et al. (2017) whereby the average level of underpricing is higher in SGX. Nonetheless, there is a huge gap between the minimum and maximum level of underpricing which is at -92.55% and 432.72%, respectively. The minimum level of underpricing was the case when NWP Holdings’ stock price fell by 7.6% on the first day of trading. On the other hand, the maximum level was the case when FGV Holdings’ stock price
Variables Frequency Percent
Communication Services 1 2.17%
Consumer Discretionary 9 19.57%
Consumer Staples 8 17.39%
Energy 3 6.52%
Financials 1 2.17%
Health Care 1 2.17%
Industrials 14 30.43%
Information Technology 1 2.17%
Materials 3 6.52%
Real Estate 3 6.52%
Utilities 2 4.35%
Total 46 100.00%
increased by 530%. With that, it is evident that there is high volatility and risk in the market for IPOs. Similarly, there is a high standard deviation for the underpricing level which is 109.7%.
Also, based on Table 34 (see Appendix B), there is a higher underpricing level during the year 2012 to 2016 as compared to 2007 to 2011 having a standard deviation of 123.14% and 91.226%, respectively. This was due to the fact that a number of listed IPOs for the period of 2012 to 2016 were more underpriced than in 2007 to 2011. From 2012 to 2016, the level of IPO underpricing ranged from -92% to 432% where FGV Holdings Bhd. had the highest underpricing level and had a 430% raw return. On the other hand, from 2007 to 2011, the underpricing level of IPOs ranged from -90% to 279% where the highest level of underpricing was generated by Focus Lumber Bhd. which had a raw return of 280%. Accordingly, 011 is rejected as IPO underpricing is evident in KLSE during the period of 2007 to 2016.
Based on the ownership structure, the average rate is at 47% and the median is 35%, which is higher than SGX, with a range from 5% to 100% which is nearly identical to SGX.
Moreover, the average firm size in this data is USD221.69 million and this starts from USD1.2 million up to USD3,259 million. In terms of the firm age, the average is at 6 years, which is closely similar to SGX, where it ranges from 0 to 68 years. The offering size is at an average of USD106.18 million that has a scope of USD0.37 million to USD4,068 million. Consequently, the average financial leverage is 126.25 which ranges from 0 to 5040 and the median is at 15 which is identical to SGX. As regards the ROE, the average is 15.27% that spans from -92.7% to 70.3%. The average offer price in this data is USD0.29 with a range from USD0.03 to USD1.92.
Table 15.
As denoted in Table 16, during the period of 2007 to 2016 in KLSE, a total of 9 industries and 53 IPOs are presented. Based on the table below, around 34% of the firms are under the industry of industrials, which has the highest percentage and is the majority among all the industries and is similar to that of SGX. Moreover, the industries of consumer discretionary, energy, and consumer staples are the succeeding industries to have high percentages, which respectively comes around 15%, 13%, and 11%. On the other hand, the financial industry has the lowest percentage among the industries which is at about 2%. Additionally, the industries of communication services, materials, information technology, and health care have low percentages having around 8% on communication services and materials, 6% on information technology, and 4% on health care.
Variables Mean Median Min Max Std. Dev
Ownership Structure (%) 47.458 35.000 5.00 100.00 29.318 Firm Size (in USD millions) 221.69 43.510 1.2000 3259.0 619.69 Firm age (in years) 6.5283 2.0000 0.0000 68.000 11.214 Offering Size (in USD millions) 106.18 7.5072 0.36960 4068.0 557.59
Financial Leverage 126.25 15.000 0.0000 5040.0 690.67
ROE (%) 15.270 17.300 -92.700 70.300 22.333
Offering Price (in USD) 0.29025 0.18000 0.028800 1.9200 0.32326
MAAR % (y) 14.911 -6.9613 -92.550 432.72 109.70
Table 16.