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Influence of institutional investors' participation on flipping activity of Malaysian IPOs

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  • Che-Yahya, Norliza
  • Abdul-Rahim, Ruzita
  • Yong, Othman

Abstract

This paper examines the influence of institutional investors’ participation on flipping activity of Malaysian IPOs. Measured as the percentage of trading volume on the first trading day against the total number of shares offered, flipping is the quickest way to gain huge profits from IPOs. However, excessive flipping activity has significant potential to create artificial downward pressure on the price of IPOs. One way to reduce such an adverse effect is by strategically allocating a larger proportion of new shares to institutional investors. This is because institutional investors are normally assumed to be long-term investors. As such, they are less likely to flip their allocated IPOs in the immediate aftermarket. The long-term investment argument is consistent with institutional investors’ preference for a steady income stream in the form of dividends. Drawing upon this argument, the greater participation of institutional investors during an IPO is expected to be an effective strategy to control aggressive flipping activity. The Malaysian IPO market offers an excellent opportunity to examine this hypothesis because data regarding the allocation of new shares to institutional investors can be traced conveniently through a type of IPO referred to as “private placement”. Based upon an examination of 248 IPOs listed on Bursa Malaysia between January 2000 and December 2012, this study finds a negative relationship between institutional investors’ participation and flipping activity. This result lends strong support to the argument concerning the effectiveness of institutional investors’ participation in controlling flipping activity in the Malaysian IPO market.

Suggested Citation

  • Che-Yahya, Norliza & Abdul-Rahim, Ruzita & Yong, Othman, 2014. "Influence of institutional investors' participation on flipping activity of Malaysian IPOs," Economic Systems, Elsevier, vol. 38(4), pages 470-486.
    • Handle: RePEc:eee:ecosys:v:38:y:2014:i:4:p:470-486
    DOI: 10.1016/j.ecosys.2014.03.002
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    References listed on IDEAS

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    Cited by:

    1. Abdolhossein Zameni & Othman Yong, 2017. "Substantial Shareholders and Their Trading Behaviour around Lock-Up Expiry: Evidence from Emerging Markets," Capital Markets Review, Malaysian Finance Association, vol. 25(1), pages 1-18.
    2. Che-Yahya, Norliza & Abdul-Rahim, Ruzita & Mohd Rashid, Rasidah, 2018. "The influence of “offer for sale” by existing shareholders on investors’ reaction in the IPO immediate aftermarket," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 818-828, August.
    3. Kooli, Maher & Zhou, Xiaozhou, 2020. "IPO flipping activity in China and its implications," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Flipping activity; Institutional investors’ participation; Malaysian IPO market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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