Performance of Initial Public Offerings of Government Linked and Private Companies in Malaysia

This study examined the relative performance of Government-linked Initial Public Offerings (GLIPOs) and Private Initial Public Offerings (IPOs) during 1984 to 2002 based on a sample of 74 newly listed companies on the Kuala Lumpur Stock Exchange. The overall results consistent with previous studies indicate that most IPOs are generally underpriced on their first day of trading. On average GLIPOs are more underpriced than private IPOs but the difference is not statistically significant. Short and long run performances reveals that only investors that are fortunate to be allocated with new issues at the offer price are able to gain positive return. IPOs become unfavourable investment if the new shares are bought at the aftermarket price. Both short and long run performances show that there is no significant difference between GLIPOs and private IPOs. The evidence shows that GLIPOs performed better than private IPOs before the economic crisis period when market was booming and performed lower than private IPOs in post crisis. As far the GLIPOs, there was no significant difference between federal-owned and state-owned IPOs. The performance of both GLIPOs and private IPOs based on business sectors showed no significant difference in performance, except for trading and service sector where GLIPOs performed better than private IPOs. A further analysis based on firms' characteristics reveals that market volatility, ex ante risk, debt ratio, profitability ratio, asset management ratio and size of the firm together explained 38 percent of the variation in the excess returns offered by GLIPOs. However, the model explained 40 percent for private IPOs.

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