Investor Sentiment and Firm Financial Performance of Malaysian IPO Firms: Pre and Post Financial Crisis

Abstract

The main purpose of this study is to investigate an important issue in behavioural finance area that is the role of investor sentiment in determining firm performance, alongside with market timing and other fundamental firm factors in the context of Malaysian market. The impact of pre and post financial crisis during study period of 2004 to 2015 is incorporated in the analysis. The study uses a balanced panel data of 143 IPO firms in Malaysia during the study period. The sentiment index is developed using panel data cross section based on three IPOs proxies, which are IPO volume, market turnover and dividend premium. The findings indicate that market timing is found to have a strong influence towards firm performance with a positive and high level of significance relationship during pre and post financial crisis. Whereas investor sentiment does influence firm performance, particularly when timing is proxied by initial return before the financial crisis period. Other firm specific factors, growth show very strong positive relationship with firm performance. The remaining factors, namely tangibility of asset, profitability, size and industry show mix results either consistent or inconsistent with past literature irrespective of pre or post financial crisis. The finding offers a useful reference for firm managers’ to consistently time the market for the new and subsequent issue. While the investors have to pay attention on important information available in the market than become overly optimistic about future prospect of any investment as firm will continue to exploit timing strategy in their financing decision.

Investors’ sentiment and stock trading in the Nigerian capital market

“…This result agrees with studies that found significant positive relationship between investors' sentiment and stock performance among emerging and developing countries (Dalika &Yudhvir, 2015;Asian Naik & Padhi, 2016;Alajekwu, Obialor, Okoro & Ibenta, 2017;Aggarwal, 2017;Pandey & Sehgal, 2019;Cheng, 2019). On the other hand, the finding from this study disagrees with studies that found no significant relationship between investors' sentiment and stock trading (Zainudin, Zaki, Hadi, Hussain & Kantakji, 2019). Therefore, behavioural economics holds in the Nigerian context.…”

“…These studies corroborate findings from Alajekwu, Obialor, Okoro and Ibenta (2017) which found that sentiment significantly influences market performance in Nigeria. On the other hand, some empirical studies found no evidence among developing and emerging economies (Zainudin, Zaki, Hadi, Hussain &Kantakji, 2019). Thus, the study on investors' sentiment and stock performance among emerging and developing economies remains inconclusive.…”

“…However, few studies in China (Huang, Yang, Yang & Sheng, 2014). In Malaysia (Zainudin, Zaki, Hadi, Hussain & Kantakji, 2019), and in the US (Tamrakar, Pyo & Gruco, 2018;Concelto &Ravazzolo, 2019) found no effect of sentiment on market performance. These results in empirical literature show that effect of sentiment largely holds in emerging markets.…”

The Moderating Effect of Investor Sentiment on the Relationship between ESG Performance and Future Financial Performance: An Empirical Study from Egypt

“…These practices involve a firm's commitment to environmental preservation, corporate social responsibility, and good governance. They include initiatives to reduce resource consumption, limit environmental emissions, sustain human rights, improve employment standards, engage with communities, and establish strong internal and external governance mechanisms (Kalia & Aggarwal, 2023;Yoon et al, 2018).…”

“…The combination of mixed results, global financial crises, and decreased trust from stakeholders has created the need for reforms aimed at enhancing ESG practices. (Kalia & Aggarwal, 2023;Yoon et al, 2018). Similarly, Chen et al (2021) propose that ESG investment initially triggers a "Substitution Effect", resulting in a short-term adverse impact on FP.…”