Equity private placements: The Malaysian experience 1999 - 2007

This study offers evidence concerning the announcement effect of equity private placements by examining the stock market reaction to the announcements made by Malaysian firms for the period 1999 to 2007.This study is motivated by empirical findings that unlike public placements, private placements are associated with positive announcement effect.Two prominent hypotheses used to explain the positive market responses are information and monitoring hypotheses.However, inconsistent with previous studies, we find zero announcement effect for Malaysian market.The result suggests that equity private placement in Malaysia does not convey positive signal as it does in other countries

Signaling and substitution hypotheses in Malaysian share repurchases

There is an increasing trend of firms undertaking share repurchases in Malaysia, yet limited studies on repurchase activities have been published. This study attempts to examine managerial motives for repurchase in Malaysia using signaling and substitution hypotheses.Unlike firms in western countries, firms in Malaysia are bound by strict rules and regulations before embarking on repurchases, thus it is argued that motives for share repurchases would be different from those of the developed markets.The results of this study are consistent with signaling hypothesis where Malaysian firms repurchase shares partly to signal undervaluation and better operating performance.They also buy back shares whenever there is an increase in cash flows.However, there is no evidence to support that these firms bought back shares to substitute dividend payments as documented by studies from western countries. In fact, repurchases are used to complement dividends.Further evidence shows that managerial ownership has significant influence on firms’ repurchase decisions

Market performance on resale of treasury shares

The study examines the announcement effects on resale of treasury shares among publicly listed firms in Malaysia.All firms that resale their treasury shares between 2001 and 2012 are analyzed using standard event methodologies namely market adjusted return (MAR) and market model (MM).We find that resale firms experience significant positive 4% abnormal returns in the 5 days prior to the actual resale of treasury shares.However, there are no abnormal gains realized following the actual resale of treasury shares date, suggesting that the market is semi-strongly efficient where prices can fully reflect all publicly available information

Future earnings growth and dividend payout: Evidence from Malaysia

This study investigates the effect of dividend payout on firms’ future earnings growth (FEG) in Malaysia. We use panel data analysis methodology to determine the effect of dividend payout and other control variables on FEG in 1, 2, 3, 4, and 5 years. Our results show that firm size and payout ratio had significant positive relationship on four out of five dynamic models tested. The remaining factors except of debt ratio are significant at least four out of the five years used in dynamic models in this study. We find evidence that Malaysian firms show mean reversion pattern in their earnings; smaller firms would enjoy greater future earnings growth; increased monitoring from creditors leads to better earnings performance; firms with better investment prospect have greater future growth in earnings; and higher investment in assets leads to higher future earnings growth. The findings show that in Malaysia, managers use dividend as a tool to signal their positive private information about the firms’ future prospect

Does market portfolio index really affect foreign exchange exposure? An empirical evidence from Malaysian non financial firms

Financial theory holds that fluctuations in exchange rate significantly influence open market firms by affecting their cash flows and firm value. Because of high market openness and fluctuations in Malaysian exchange rate, this study first investigates the extent to which 224 sampled firms of Malaysia face foreign exchange risk during the period of 2008 to 2014. It is found that 37% of the firms are exposed to (total) foreign exchange rate exposure during sample period. The dominance of Malaysian firms with positive β1 in each year implies that most of the Malaysian firms in the sample are net-exporters. To test the sensitivity of market portfolio index in exposure model, the Malaysian market index, i.e., FBMEMAS, is added in the exposure model and foreign exchange exposure for Malaysian firms is re-estimated over the sample period. It is obvious from the results that the number of significant coefficients of market index remains surprisingly high throughout the sample period than that of tradeweighted Index (TWI). A 67% of total firms have significant relationship with market index over the sample period as compared to 9% of TWI which shows drastic decreased in foreign exchange exposure by 76%. These results confirm that sometimes market portfolio index as a whole become strongly correlated with exchange rate changes and, in result, it dramatically reduces foreign exchange exposure

Determinants of hedging: a review of theoretical studies

Hedging instruments are deemed as value enhancing tool for both financial and non financial firms. The aim of this study is to highlight those theoretical studies which are written in context of hedging determinants. Theoretical studies argued that in a world with no taxes, no transaction costs, and with fixed investment policies, hedging with derivatives is irrelevant to firm value. However, some studies suggests that derivative instruments can increase firm value when the premises of a perfect market have been relaxed, since they can eliminate corporate tax liabilities, financial distress costs, dependence on costly external financing, and agency costs

Resale of treasury shares: Malaysia evidence

The first objective of the study examines the announcement effects on resale of treasury shares among public listed firms in Malaysia. All firms that resale their treasury shares between 2001 and 2012 are examined using standard event methodologies namely market adjusted return (MAR) and market model (MM).The finding reveals that resale firms experience significant positive 4% abnormal returns in 5 days prior to the actual resale of treasury shares. There is no abnormal gains realize following the actual resale of treasury shares date suggesting that market is semi-strongly efficient where prices can fully reflect all publicly available information.The second objective is to assess the relationships between three companies' financial characteristics and the magnitude of shares resale, which is the percentage of shares resale in the open market (PRESALE).Based on signaling theory, it is found that both prior returns and current EPS are positively and significantly affecting the percentage of treasury shares resold in the market while LAGEPS has a negative and significant relationship with PRESALE

Do institutional investors drive the IPO valuation?

This study aimed to investigate the effect of institutional ownership on initial public offering (IPO) valuation and also to examine the indirect role played by the pricing mechanism on the relationship. Cross-sectional multiple regression was used to analyse the relationship between institutional ownership and IPO valuation based on the sample of 450 IPOs listed on Bursa Malaysia between January 2000 and December 2018. The results show that institutional ownership had a positive association with IPO valuation. The signalling role of institutional investors attempted to convey information on firms' qualities which in turn had approximately fair IPO valuations. Further, this study found that book-built IPOs with higher institutional ownership were priced more closely to the firms' intrinsic values. The results have implications for underwriters and issuers in signalling firms’ qualities through incorporating book-building in IPOs and allocating a higher number of shares to institutional investors

Growth opportunity and IPO value: An empirical study of Malaysian IPOs

The offer price of Malaysian initial public offerings (IPOs) is mostly determined by fixed-price mechanism, indicating that information for investors regarding the actual value of an IPO is not being fully reflected in the offer price. The investors’ opinion in fact triggers IPO value on the first trading day in the market. This study aims to investigate the effect of growth opportunity on the pricing of Malaysian IPOs upon being listed on Bursa Malaysia. The sample of the study consists of 126 IPOs listed from January 2009 to December 2017. Through the analysis of cross-sectional and quantile regression in median and high quantiles, the study found a significant positive relationship between growth opportunity and total market value of IPOs. The findings suggest that IPOs which allocate a greater proportion of proceeds for firms’ future growth signal the firms’ quality, leading investors to trigger IPO value upwards during first-trading day. The findings have implications for the regulators, specifically the Securities Commission and Bursa Malaysia, to ensure that the information on the uses of proceeds revealed in IPO prospectuses is in line with the “Equity Guidelines” because this information gives impact on the investors’ decisions towards IPO subscription

Exposure to foreign exchange rate risk: a review of empirical evidences

Exposure to foreign exchange rate risk has become an increasingly important issue to investors and financial managers identical with the globalization of markets, and particularly in the wake of the events that occurred in the Asian financial markets. The impact of foreign exchange rate exposure on the value of the firm has been the subject of empirical literature for several decades. In recent times some empirical literature has also emerged. This study reviews the studies that investigate the exposure to currency risk of different economies. Both developing and developed economies has been subject to this study. It is concluded that most of the emerging and developing economies are exposed to higher level of foreign currency exposure. This is due to high level of openness and large amount of import and exports. In contrast, almost all closed and developed economies exhibits low level of exposure due to low amount of import and exports