Size Effect , Winner ’ s Curse and Performance of Malaysian IPOs : Evidence from 2004-2008

Abstract

This paper examines the initial performance of 236 Malaysian IPOs from January 2004 to December 2008. The study finds that the average initial return of the 236 Malaysian IPOs is markedly lower (but still under-priced) than any other average initial return before 2004 reported in prior studies; the same is true for the average over-subscription ratio. IPOs listed on MESDAQ generate the highest initial returns compared to those listed on either the Main Board or the second Board, thus giving support to size effect hypothesis. Overall, the average initial return of private placement IPOs is lower than the average initial return of the non-private placement IPOs that seems to suggest that an IPO without the participation of informed investors (as in the case of private placement IPOs) will require greater initial returns, which seems to support the winner’s curse hypothesis. In general, only investor demand (as represented by over- subscription ratio) can explain (on a consistent basis) the levels of initial return of Malaysian IPOs.