Initial Performance of IPOs listed on MESDAQ

Abstract

This paper examines the initial performance and bandwagon effect of all 93 IPOs on MESDAQ from the time of its merging with KLSE in April 2002 to December 2005. This is the first in-depth study of the performance of IPOs listed on MESDAQ: past work is focused either on the Main Board or the Second Board of Bursa Malaysia. Detailed analysis of initial returns is made on the basis of type of offer, investor demand, issuing base, size of offer, and sector classification. The average initial return (offer-to-open) is 4265 per cent and the average initial return (offer-to-close) is 43.29 per cent. The average over-subscription ratio is 53.14 times, a figure higher than reported by earlier studies on either the Main Board or the Second Board of Bursa Malaysia. There is a significant difference between the average initial return of the offer for sale and that of public issue. In general, public issue is more under-priced than the offer for sale. Overall, the higher the subscription ratio, the higher is the initial return. However, even though the average initial return of public issue is significantly higher than the average initial return of offer for sale the average over-subscription ratio of public issue is somewhat significantly lower than the average over-subscription ratio of offer for sale. Finally, this study finds that there is no handagon effect, that is, the high demand for an IPO (as represented by the over-subscription ratio does not result in a high increase in price from the opening to the closing.