Comparative Analysis Of Foreign And Domestic Ipos In Malaysia And A Qualitative Study Of Foreign Ipos In Malaysia

by Meraj Alam

Abstract

The opening of the local capital markets to foreign firms to offer their first public issue, the increasing competition among the regional equity markets to attract more foreign listings and with initiatives underway to attract firms seeking dual listing on Bursa, the study aims to explore the quality of foreign firms seeking listing in Malaysia. The study performs a comparative analysis of 30 foreign and domestic IPOs in Malaysia between 2009-2010 based on two sets of characteristics- firm specific and IPO specific to explore the ways in which the two sets of firms- foreign and domestic differ. All the foreign firms in our sample are from China with none of them having their operations in Malaysia. 

The quantitative analysis performed on the two sets of firms using descriptive statistics reveal that they differ significantly with respect to fundamentals of the firms and IPO specific characteristics. Besides, the study also found differences in performance of these two types of firms in the short run. It is found that foreign IPOs had a higher initial day return but subsequently underperformed compared to their domestic counterparts over a short term period of 60 days. 

The qualitative analysis of the foreign IPOs in Malaysia entails event study of firm specific information related to foreign IPOs to assess investors’ perception and market reaction to these information. The study reveals that domestic investors are quite sensitive to information and events related to foreign IPOs which show that investors perceive investments in foreign IPOs as risky. The study is a preliminary research trying to bring out the structural and performance differences between foreign and domestic IPOs and does not attempt to find the determinants of differential performance of the two sets of firms. 

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