ANTICIPATED AND ACTUAL USE OF CAPITAL RAISED IN MALAYSIAN IPO MARKET
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Published
Mar 1, 2016
Abstract
This study investigates the anticipated and the actual use of capitalraised from initial public offering (IPO) in Malaysia. The descriptive analysisshows that companies anticipate the use of capital mainly for growth opportunities(47%), working capital (27%), debt repayment (12%) and listing expenses (13%).Further analysis indicates that 54% of IPO companies have dedicated more than50% of the amount of capital raised for growth opportunities. Very few companiesplanned to use the capital raised for research and development (R&D) andmarketing activities. The regression results also confirm that the anticipated use ofcapital for R&D and marketing have no significant relationship with total amountof capital raised. In addition, a content analysis of the chairmen’s statements andthe section dedicated for actual use of capital raised in the annual reports revealthat majorly 73 out of 121 companies’ exhibit changes in the anticipated use ofcapital raised. Therefore, this study concludes that relevant parties in the IPOprocess (e.g., regulators, issuers, financial intermediaries and investors) shouldpay close attention to the anticipated and actual use of capital raised.
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Keywords
Anticipated use,actual usegrowth opportunitiesworking capitaldebt repaymentIPO proceeds
References
• Ahmad-Zaluki, N. A., Campbell, K., and Goodacre, A. (2011). Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance. International Journal of Accounting,46(2), 111–137.
• Ahn, H., and Nam, D. (2013). Do new ventures really use proceeds as intended? Proceeds, lock-up expiration, and firm innovation (Interactive paper). Frontiers of Entreprenuership Research, 33(3). Retrieved from digitalknowledge.babson.edu
• Alavi, A., Pham, P. K., and Pham, T. M. (2008). Pre-IPO ownership structure and its impact on the IPO process. Journal of Banking and Finance, 32(11), 2361–2375.
• Ammer, M. A., and Ahmad-Zaluki, N. A. (2016). The effect of underwriter’s market share, spread and management earnings forecasts bias and accuracy on underpricing of Malaysian IPOs. International Journal of Managerial Finance, 12(3), 351-371.
• Andriansyah, A., and Messinis, G. (2016). Intended use of IPO proceeds and firm performance: Aquantile regression approach. Pacific-Basin Finance Journal, 36, 14-30.
• Autore, D. M., Boulton, T. J., Smart, S. B., and Zutter, C. J. (2014). The impact of institutional quality on initial public offerings. Journal of Economics and Business, 73, 65–96.
• Babich, V., and Sobel, M. J. (2004). Pre-IPO operational and financial decisions. Management Science, 50(7), 935-948.
• Balatbat, M. C., and Bertinshaw, S. (2008). Use of proceeds disclosures in IPO prospectuses : do issuers come clean ? FINSIA Journal of Applied Finance, 1(2), 17–22.
• Beatty, R. P., and Ritter, J. R. (1986). Investment banking, reputation, and the underpricing of initial public offerings. Journal of Financial Economics, 15(1-2), 213–232.
• Bhabra, H. S., and Pettway, R. H. (2003). IPO prospectus information and subsequent performance. Financial Review, 38(3), 369–397.
• Black, B. S., and Gilson, R. J. (1998). Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics, 47, 243–277.
• Booth, J. R., and Booth, L. C. (2010). Why is IPO Underpricing a Global Phenomenon? Papers. Ssrn.Com. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1663437
• Bond, S., and Meghir, C. (1994). Dynamic investment models and the firm’s financial policy. Review of Economic Studies, 61(2), 197-222.
• Brau, J. C., and Fawcett, S. E. (2006). Initial Public Offerings: An Analysis of Theory and Practice. Journal of Finance, 61(1), 399–436.
• Carpenter, R. E., and Rondi, L. (2006). Going public to grow? Evidence from a panel of Italian firms. Small Business Economics, 27, 387–407.
• Chahine, S., and Filatotchev, I. (2008). The effects of information disclosure and board independence on IPO discount. Journal of Small Business Management, 46(2), 219-241.
• Chemmanur, T. J., and Fulghieri, P. (1999). A theory of the going-public decision. Review of Financial Studies, 12(2), 249–279.
• Chemmanur, T. J., and He, J. (2011). IPO waves, product market competition, and the going public decision: Theory and evidence.Journal of Financial Economics, 101(2), 382–412.
• Chen, Q., Ding, S., Jia, C., and Wu, Z. (2015). What happens when firms break promises? The case of information credibility. European Journal of Finance, 1(1), 1-20.
• Clementi, G. L. (2002). IPOs and The Growth of Firms. http://dx.doi.org/10.2139/ssrn.314277
• Deeds, D. L., DeCarolis, D., and Coombs, J. (1997). The impact of firm specific capabilities on the amount of capital raised in an initial public offering: Evidence from the Biotechnology industry. Journal of Business Venturing, 8(1), 97–100.
• Graham, J. R., and Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2), 187-243.
• Habib, M. A., and Ljungqvist, A. P. (1998). Underpricing and IPO proceeds: a note. Economics Letters, 61(3), 381–383.
• Hanley, K. W., and Hoberg, G. (2010). The information content of IPO prospectuses. Review of Financial Studies, 23(7), 2821–2864.
• Helwege, J., and Liang, N. (1996). Is there a pecking order? Evidence from a panel of IPO firms. Journal of Financial Economics, 40, 429–458.
• Hill, P. (2008). Declared investment plans and IPO firm value. Applied Financial Economics,18(1), 23–39.
• Jensen, M. C., and Meckling, W. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
• Kim, W., and Weisbach, M. S. (2008). Motivations for public equity offers: An international perspective. Journal of Financial Economics,87(2), 281–307.
• Latham, S., and Braun, M. R. (2010). To IPO or Not To IPO: Risks, uncertainty and the decision to go public. British Journal of Management, 21(3), 666–683.
• Leone, A. J., Rock, S., and Willenborg, M. (2007). Disclosure of intended use of proceeds and underpricing in initial public offerings.Journal of Accounting Research, 45(1), 111–153.
• Loughran, T., and Ritter, J. R. (2002). Why don’t issuers get upset about leaving money on the table in IPOs ? Review of Financial Studies, 15(2), 413–443.
• Loughran, T., Ritter, J. R., and Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 3(1), 139–140.
• Maug, E. (2001). Ownership structure and the life-cycle of the firm: A theory of the decision to go public. European Finance Review, 5, 167–200.
• Mello, A. S., and Parsons, J. E. (1998). Going public and the ownership structure of the firm. Journal of Financial Economics, 49, 79–109.
• Modigliani, F., and Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review,48(3), 261–297.
• Modigliani, F., and Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53(3), 433–443.
• Mohd-Sulaiman, A. N. (2008). Financial misreporting and securities fraud-public and private enforcement. Australian Journal of Corporate Law, 22, 31-50.
• Morellec, E., and Schürhoff, N. (2011). Corporate investment and financing under asymmetric information. Journal of Financial Economics, 99(2), 262–288.
• Myers, S. C. (1984). The capital structure puzzle. Journal of Finance,39(3), 575–592.
• Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
• Pagano, M., Panetta, F., and Zingales, L. (1996). The stock market as a source of capital: Some lessons from initial public offerings in Italy.European Economic Review, 40, 1057–1069.
• Pagano, M., Panetta, F., and Zingales, L. (1998). Why do companies go public ? An empirical analysis. Journal of Finance, 53(1), 27–64.
• Pastor, L., Taylor, L. A., and Veronesi, P. (2009). Entrepreneurial learning, the IPO decision, and the post-IPO drop in firm profitability.Review of Financial Studies, 22(8), 3005–3046.
• Pastor, Ľ., and Veronesi, P. (2005). Rational IPO waves. Journal of Finance, 60(4), 1713–1758.
• Rajan, R. G. (1992). Insiders and Outsiders: The choice between informed and arm’s-length debt. Journal of Finance, 47(4), 1367–1400.
• Ritter, J. R. (1987). The costs of going public. Journal of Financial Economics, 19(4), 269–281.
• Ritter, J. ., and Welch, I. (2002). A Review of IPO activity, pricing, and allocations. Journal of Finance, 57(4), 1795–1828.
• Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15, 187–212.
• Röell, A. (1996). The decision to go public: An overview. European Economic Review, 40(32),1071–1081.
• Rydqvist, K., and Hogholm, K. (1995). Going public in the 1980s: Evidence from Sweden. European Financial Management, 1(3), 287–315.
• Scott Jr, J. H. (1976). A theory of optimal capital structure. Bell Journal of Economics, 7(1), 33–54.
• Subrahmanyam, A., and Titman, S. (1999). The going-public decision and the development of financial markets, 54(3), 1045–1082.
• Tapa, A., and Mazlan, A. R. (2013). Operating performance of Malaysian initial public offerings.2nd International Conference on Management, Economics and Finance (2nd ICMEF 2013), 28 -29 October 2013, Novotel 1Borneo, Kota Kinabalu, Sabah, Malaysia.
• Trueman, B. (1986). The relationship between the level of capital expenditures and firm value. Journal of Financial and Quantitative Analysis, 21(2), 115.
• Vascellaro, B. J. E. (2010). Facebook CEO in no rush to “Friend” Wall Street., 1–7. //www.wsj.com/articles/SB10001
• Welbourne, T. M., and Cyr, L. A. (1999). The human resource executive effect in initial public offering firms. Academy of Management Journal,42(6), 616-629.
• Ahn, H., and Nam, D. (2013). Do new ventures really use proceeds as intended? Proceeds, lock-up expiration, and firm innovation (Interactive paper). Frontiers of Entreprenuership Research, 33(3). Retrieved from digitalknowledge.babson.edu
• Alavi, A., Pham, P. K., and Pham, T. M. (2008). Pre-IPO ownership structure and its impact on the IPO process. Journal of Banking and Finance, 32(11), 2361–2375.
• Ammer, M. A., and Ahmad-Zaluki, N. A. (2016). The effect of underwriter’s market share, spread and management earnings forecasts bias and accuracy on underpricing of Malaysian IPOs. International Journal of Managerial Finance, 12(3), 351-371.
• Andriansyah, A., and Messinis, G. (2016). Intended use of IPO proceeds and firm performance: Aquantile regression approach. Pacific-Basin Finance Journal, 36, 14-30.
• Autore, D. M., Boulton, T. J., Smart, S. B., and Zutter, C. J. (2014). The impact of institutional quality on initial public offerings. Journal of Economics and Business, 73, 65–96.
• Babich, V., and Sobel, M. J. (2004). Pre-IPO operational and financial decisions. Management Science, 50(7), 935-948.
• Balatbat, M. C., and Bertinshaw, S. (2008). Use of proceeds disclosures in IPO prospectuses : do issuers come clean ? FINSIA Journal of Applied Finance, 1(2), 17–22.
• Beatty, R. P., and Ritter, J. R. (1986). Investment banking, reputation, and the underpricing of initial public offerings. Journal of Financial Economics, 15(1-2), 213–232.
• Bhabra, H. S., and Pettway, R. H. (2003). IPO prospectus information and subsequent performance. Financial Review, 38(3), 369–397.
• Black, B. S., and Gilson, R. J. (1998). Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics, 47, 243–277.
• Booth, J. R., and Booth, L. C. (2010). Why is IPO Underpricing a Global Phenomenon? Papers. Ssrn.Com. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1663437
• Bond, S., and Meghir, C. (1994). Dynamic investment models and the firm’s financial policy. Review of Economic Studies, 61(2), 197-222.
• Brau, J. C., and Fawcett, S. E. (2006). Initial Public Offerings: An Analysis of Theory and Practice. Journal of Finance, 61(1), 399–436.
• Carpenter, R. E., and Rondi, L. (2006). Going public to grow? Evidence from a panel of Italian firms. Small Business Economics, 27, 387–407.
• Chahine, S., and Filatotchev, I. (2008). The effects of information disclosure and board independence on IPO discount. Journal of Small Business Management, 46(2), 219-241.
• Chemmanur, T. J., and Fulghieri, P. (1999). A theory of the going-public decision. Review of Financial Studies, 12(2), 249–279.
• Chemmanur, T. J., and He, J. (2011). IPO waves, product market competition, and the going public decision: Theory and evidence.Journal of Financial Economics, 101(2), 382–412.
• Chen, Q., Ding, S., Jia, C., and Wu, Z. (2015). What happens when firms break promises? The case of information credibility. European Journal of Finance, 1(1), 1-20.
• Clementi, G. L. (2002). IPOs and The Growth of Firms. http://dx.doi.org/10.2139/ssrn.314277
• Deeds, D. L., DeCarolis, D., and Coombs, J. (1997). The impact of firm specific capabilities on the amount of capital raised in an initial public offering: Evidence from the Biotechnology industry. Journal of Business Venturing, 8(1), 97–100.
• Graham, J. R., and Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2), 187-243.
• Habib, M. A., and Ljungqvist, A. P. (1998). Underpricing and IPO proceeds: a note. Economics Letters, 61(3), 381–383.
• Hanley, K. W., and Hoberg, G. (2010). The information content of IPO prospectuses. Review of Financial Studies, 23(7), 2821–2864.
• Helwege, J., and Liang, N. (1996). Is there a pecking order? Evidence from a panel of IPO firms. Journal of Financial Economics, 40, 429–458.
• Hill, P. (2008). Declared investment plans and IPO firm value. Applied Financial Economics,18(1), 23–39.
• Jensen, M. C., and Meckling, W. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
• Kim, W., and Weisbach, M. S. (2008). Motivations for public equity offers: An international perspective. Journal of Financial Economics,87(2), 281–307.
• Latham, S., and Braun, M. R. (2010). To IPO or Not To IPO: Risks, uncertainty and the decision to go public. British Journal of Management, 21(3), 666–683.
• Leone, A. J., Rock, S., and Willenborg, M. (2007). Disclosure of intended use of proceeds and underpricing in initial public offerings.Journal of Accounting Research, 45(1), 111–153.
• Loughran, T., and Ritter, J. R. (2002). Why don’t issuers get upset about leaving money on the table in IPOs ? Review of Financial Studies, 15(2), 413–443.
• Loughran, T., Ritter, J. R., and Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 3(1), 139–140.
• Maug, E. (2001). Ownership structure and the life-cycle of the firm: A theory of the decision to go public. European Finance Review, 5, 167–200.
• Mello, A. S., and Parsons, J. E. (1998). Going public and the ownership structure of the firm. Journal of Financial Economics, 49, 79–109.
• Modigliani, F., and Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review,48(3), 261–297.
• Modigliani, F., and Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53(3), 433–443.
• Mohd-Sulaiman, A. N. (2008). Financial misreporting and securities fraud-public and private enforcement. Australian Journal of Corporate Law, 22, 31-50.
• Morellec, E., and Schürhoff, N. (2011). Corporate investment and financing under asymmetric information. Journal of Financial Economics, 99(2), 262–288.
• Myers, S. C. (1984). The capital structure puzzle. Journal of Finance,39(3), 575–592.
• Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
• Pagano, M., Panetta, F., and Zingales, L. (1996). The stock market as a source of capital: Some lessons from initial public offerings in Italy.European Economic Review, 40, 1057–1069.
• Pagano, M., Panetta, F., and Zingales, L. (1998). Why do companies go public ? An empirical analysis. Journal of Finance, 53(1), 27–64.
• Pastor, L., Taylor, L. A., and Veronesi, P. (2009). Entrepreneurial learning, the IPO decision, and the post-IPO drop in firm profitability.Review of Financial Studies, 22(8), 3005–3046.
• Pastor, Ľ., and Veronesi, P. (2005). Rational IPO waves. Journal of Finance, 60(4), 1713–1758.
• Rajan, R. G. (1992). Insiders and Outsiders: The choice between informed and arm’s-length debt. Journal of Finance, 47(4), 1367–1400.
• Ritter, J. R. (1987). The costs of going public. Journal of Financial Economics, 19(4), 269–281.
• Ritter, J. ., and Welch, I. (2002). A Review of IPO activity, pricing, and allocations. Journal of Finance, 57(4), 1795–1828.
• Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15, 187–212.
• Röell, A. (1996). The decision to go public: An overview. European Economic Review, 40(32),1071–1081.
• Rydqvist, K., and Hogholm, K. (1995). Going public in the 1980s: Evidence from Sweden. European Financial Management, 1(3), 287–315.
• Scott Jr, J. H. (1976). A theory of optimal capital structure. Bell Journal of Economics, 7(1), 33–54.
• Subrahmanyam, A., and Titman, S. (1999). The going-public decision and the development of financial markets, 54(3), 1045–1082.
• Tapa, A., and Mazlan, A. R. (2013). Operating performance of Malaysian initial public offerings.2nd International Conference on Management, Economics and Finance (2nd ICMEF 2013), 28 -29 October 2013, Novotel 1Borneo, Kota Kinabalu, Sabah, Malaysia.
• Trueman, B. (1986). The relationship between the level of capital expenditures and firm value. Journal of Financial and Quantitative Analysis, 21(2), 115.
• Vascellaro, B. J. E. (2010). Facebook CEO in no rush to “Friend” Wall Street., 1–7. //www.wsj.com/articles/SB10001
• Welbourne, T. M., and Cyr, L. A. (1999). The human resource executive effect in initial public offering firms. Academy of Management Journal,42(6), 616-629.
How to Cite
Badru, Bazeet O., Nurwati A. Ahmad Zaluki, and Wan Nordin Wan Hussin. 2016. “ANTICIPATED AND ACTUAL USE OF CAPITAL RAISED IN MALAYSIAN IPO MARKET”. Studies in Business and Economics 19 (1). https://doi.org/10.29117/sbe.2016.0095.
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Articles