Intended Use of Proceeds and the Performance of Initial Public Offerings (IPO)

Faculty of Accountancy, Universiti Teknologi MARA Melaka

^* Corresponding author’s email: azrina@bdrmelaka.uitm.edu.my

Abstract

Other than debt financing, Initial Public Offerings (IPO) become a common method of capital raising among firms for various purposes. Prospectus is issued on the pre-issuance of the IPO disclosing various mandatory and non-mandatory voluntary information to help the potential investors in their decision making process. Other than financial information on previous and forecasted future performance, the intended use of the IPO’s proceeds information is one of the crucial information for the stakeholders especially the investors as they will be the financial contributor for the purposes. In one hand, the issuers may decide to issue highly priced IPO to fulfil their financial needs and other going-public motives. In the other hand, the investors willing to subscribe for the IPO to meet their investment target. The gap between the objectives of these two main stakeholders create uncertainties that may jeopardize the interest of the investors. Thus, the objective of this paper is to investigate the relationship between the intended uses of the IPO’s proceed disclosed in the prospectus and their subsequent performance of the stocks. The result of the study can provide input for the investors and other stakeholders for their decision making process to meet their respective objectives.