Business, Management and Accounting
5 years ago

Reputable underwriters reduce IPO underpricing, benefiting Malaysian investors and firms.

International Journal of Emerging Markets
Prestige signals and heterogeneity of opinion regarding IPO values: Malaysian evidence
Ali Albada, Soo‐Wah Low, Othman Yong

Paper Summary

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The article examines how prestigious signals like underwriter reputation and board size affect investor opinions on IPO values in Malaysia. They studied 281 IPOs from 2000 to 2015 and found that reputable underwriters and larger board sizes lead to less disagreement among investors. This means that IPOs with these signals are less likely to be underpriced. Additionally, higher offer prices, initial returns, and over-subscription ratios are linked to greater investor disagreement, while larger IPO sizes are associated with less disagreement. Overall, prestigious signals help reduce investor heterogeneity, leading to lower costs for companies raising capital through IPOs.