An examination on new issues in the Malaysian stock market

In the seventies and early eighties, new issues in the Malaysian stock market were reported to be excessively underpriced relative to the other stock markets of the world. Previous studies suggest that such practice was the result of deliberate action by the Government which controls the new issues market. Nonetheless, the secondary market was found to be efficient in pricing the new issues in the aftermarket. This study is designed to investigate the pattern of underpricing in recent years to determine whether such practice is still prevalent. It goes further to identify the factors that influence the level of underpricing among the new issues. Unlike the previous studies, this research investigates all companies seeking listing in the Kuala Lumpur Stock Exchange within the period of 1987 to 1992. Overall, 135 companies were studied to determine the initial excess return. Of these, the performance of 133 companies within the first 90 days after listing was observed to monitor the short-term price movement. A regression analysis was conducted on 117 companies to test the twelve independent variables thought to be significant in influencing the level of underpricing.