The Impact of “Offer for Sale†by Existing Shareholders in an IPO on Initial Aftermarket Performance

This study examines the impact of “offer for sale†by existing shareholders in an IPO on initial aftermarket performance. The “offer for sale†is measured by the proportion of shares offered to public from the sale of the existing shareholdings against the total number of shares offered during IPO. The “offer for sale†activity suggests that proceed from the shares sold to investors at an IPO would go into the pocket of the existing shareholders. That is, the proceed does not actually meet the goals of the IPO which is to raise fund. The new investors expect new cash inflows for the firm to finance new projects and to secure its sustainable growth. IPO firms that go public mainly through “offer for sale†activity are expected to receive less demand during the IPO from the potential investors. In other words, the investors prefer to invest more in IPO firms that offer entirely newly issued shares rather than those that offer a combination of “public issue†and “offer for sale†. Firms which their shares are offered through “offer for sale†activity are predicted to produce poor initial aftermarket performance relative to firms which their shares are newly issued. Employing a sample of 419 Malaysian IPOs issued from January 2000 to December 2015, regression results of this study reveal that firms which their shares are offered highly through “offer for sale†report poor initial aftermarket performance.