The Signaling Power of the Investment Banks’ Reputation on the Performance of IPOs on Bursa Malaysia

Lin Yong Tong, Rubi Ahmad

Abstract


ABSTRACT

This study examines the extent of the investment banks’ (IB) reputation, both high and low, affect the performance of the initial public offers (IPOs) on the Malaysian Main Board, Second Board and the MESDAQ market. Conventional and modified methodologies are used to measure the abnormal returns of the Malaysian samples between 2002 and 2008. The regression results based on the modified methods demonstrate that the reputation of IBs have significant influence over the performance of IPOs. However, the positive impact of the high reputation IBs (High IBs) is restricted to the Second Board over the short and medium terms but the negative influence of the low reputation IBs (Low IBs) is confined to the MESDAQ companies over the medium and the long terms. Contrary to many prior empirical studies, the reputation of the IBs does posses the signaling power to infer the future performance of IPOs.

Keywords: IPO; investment bank; reputation; performance; abnormal returns; certifications

ABSTRAK

Kajian ini mengkaji sejauh mana reputasi bank pelaburan (IB) mempengaruhi prestasi nilai harga saham terbitan awam (IPO) yang berdaftar di Papan Utama, Papan Kedua dan MESDAQ Bursa Malaysia. Metodologi konvensional termasuk juga yang diubahsuai digunakan untuk mengukur pulangan tidak normal bagi sampel IPO Malaysia yang berdaftar dari tahun 2002 dan 2008. Hasil regresi kajian daripada model yang diubahsuai ini menunjukkan bahawa reputasi IB mempengaruhi prestasi IPO. Namun begitu, IB yang bereputasi tinggi memberi kesan positif yang signifikan ke atas nilai IPO yang berdaftar di Papan Kedua manakala IB yang bereputasi rendah memberi kesan negatif ke atas IPO yang berdaftar di MESDAQ bagi jangka masa sederhana dan panjang. Bertentangan dengan kajian empirikal yang lepas, reputasi IB mempunyai kuasa penentu untuk menganggarkan prestasi masa hadapan IPO.


Kata kunci: IPO; bank pelaburan; reputasi; prestasi; pulangan tidak normal; pensijilan


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