Role of market sentiment, economic condition and accounting indicators on initial public offerings (IPO): A hierarchical analysis

The IPO market plays an important role in an economy, enabling companies to raise capital through the issuance and sales of shares. Extensive research on IPOs initial return (under/over pricing) has been undertaken all over the world, and it has been widely documented that underpricing exist at different levels and is said to be a compensation for post-IPO uncertainty. This study looks in depth into the initial returns of IPOs over the period 2001 – 2010. A correlation, multiple linear regression and step-wise regression is undertaken to identify the impact of economic factors, market sentiments and projected financial variables on the over/under pricing of IPO. The results indicate that the extent of underpricing of IPOs have significantly decreased compared to the 80’s and 90’s. There isn't any clear trend in the under or over pricing of IPOs for the period of study (2001 – 2010) except that 2004 shows an underpricing of 22.47%, whilst 2009 shows an overpricing of 15.09%. Generally, no correlation or association were found between the economic variables (gross domestic product, Import, Export & Foreign Portfolio Investments), Market Sentiments (Kuala Lumpur Composite Index & Turnover) and Companies Financial Variables (Dividend Yield, Price-earnings ratio, Earnings per share & Net Tangible Assets).