Decomposition of intended use of initial public offering proceeds: Evidence from malaysia

Abstract

The main objective of this study is to find out what Malaysian initial public offering (IPO) issuers indicate the intended use of IPO’s proceeds is for, and the use that has the greatest allocation. It also investigates whether or not the allocation of the proceeds of the IPO to each intended use differs across industries. In order to achieve the objectives of the study, a manual content analysis of the prospectuses of 221 IPO issuers during the period from 2005 to 2015 was undertaken. The data were analyzed using descriptive statistics, one-way analysis of variance (ANOVA), the Independent Samples t-Test and the Wilcoxon Rank Sum test. The results show that the issuers state a number of uses as their intended use of the IPO’s proceeds (business expansion, capital expenditure, debt repayment, research and development (R&D) and working capital). However, the uses that received the highest amounts and the greatest percentages of the IPO’s proceeds were capital expenditure, followed by debt repayment and business expansion. Further analysis through the Independent Sample t-Test and Wilcoxon Rank Sum test reveals that the pattern of the allocation of IPO proceeds for a specific use is influenced by the industry classification of the issuers. Specifically, a statistically higher mean score for R&D is found in technology industries as compared to other industries. Therefore, it would be interesting if future studies can investigate how the intended use of IPO proceeds affect subsequent IPO’s performance.