Decomposition of intended use of IPO proceeds: Evidence from Malaysia

Abstract

The main objective of the study is to identify what Malaysian IPO issuers indicate as intended use of IPO proceeds and the use that has the highest amount of allocation. In order to achieve the objective of the study, a manual content analysis of 221 IPO prospectuses issued during the period of 2005-2015 were considered. Based on the manual content analysis, the data were analysed using descriptive statistics and analysis of variance (ANOVA). The results indicate that the three major intended uses of IPO proceeds in Malaysian IPO market are growth opportunities (53.90%), debt repayment (29.12%) and working capital (12.87%). However, growth opportunities and debt repayment have greater amount of allocation than working capital over the sample periods. Additionally results show that Malaysian IPO issuers expend more on capital expenditure and expansion rather than research and development in terms of growth opportunities. Further analysis in terms of the frequencies of number of IPO issuers indicate that number of issuers that have a designated amount for working capital (95%) supersede issuers in the growth opportunities group (90%). These results suggest that issuers can consider intended use of IPO proceeds information as a signal mechanism and potential investors can as well consider the information useful before making their investment decisions.

Does Time Frame of IPO Proceeds Predict Survival of Firms? Evidence from the Malaysian Market

“…We find that most firms (248 firms compared to 175 firms) limit their SUG below 50% upon listing. Although past studies find that firms listed in Bursa Malaysia prioritize their raised IPO proceeds for growth motives (Abdul Rahman & Che-Yahya, 2019; Badru, 2021), our further investigation reveals that Malaysian listed firms regularly allocate funds to their SUG below 50%.…”

“…The mean exhibits in Table 2 imply that firms listed during the studied period largely allocate their strategic proceeds for growth motives and working capital. Consistent with past studies conducted in the Malaysian market (Abdul Rahman & Che-Yahya, 2019; Badru, 2021), firms listed in the Malaysian market prioritize their allocation of IPO proceeds to potentially grow their businesses through the usage of capital expenditure and working capital. To note, the minimum value of 0% for all categories of IPO proceeds’ strategic use is firms that do not allocate any amount of raised IPO proceeds to the particular category.…”

Intended Use of IPO Proceeds and Survival of Listed Companies in Malaysia

“…Commonly, there are three primary IPO proceed allocation categories that companies usually subdivide in the prospectus 4 for their public listings. They are growth opportunities, repayment of debts, and financing on working capital (Badru 2021). In an IPO market, investors usually favour companies with motives similar to their objectives.…”

IPO Underpricing Analysis: Underwriter Reputation as A Moderating Variable

“…There has been an increase in the Company's IPOs from 2020 to 2023 and a significant increase in 2023. The expansion of a company and the funding of its numerous expenses, including operations, debt repayment, and research and development, can be facilitated by a First Public Offering, an alternative method of raising capital (Badru, 2021). Companies that do go public can earn profits but also get consequences.…”