Decomposition of intended use of IPO proceeds: Evidence from Malaysia

Bazeet Olayemi Badru
(Submitted 19 April 2018)
(Published 18 April 2021)


The main objective of the study is to identify what Malaysian IPO issuers indicate as intended use of IPO proceeds and the use that has the highest amount of allocation. In order to achieve the objective of the study, a manual content analysis of 221 IPO prospectuses issued during the period of 2005-2015 were considered. Based on the manual content analysis, the data were analysed using descriptive statistics and analysis of variance (ANOVA). The results indicate that the three major intended uses of IPO proceeds in Malaysian IPO market are growth opportunities (53.90%), debt repayment (29.12%) and working capital (12.87%). However, growth opportunities and debt repayment have greater amount of allocation than working capital over the sample periods. Additionally results show that Malaysian IPO issuers expend more on capital expenditure and expansion rather than research and development in terms of growth opportunities. Further analysis in terms of the frequencies of number of IPO issuers indicate that number of issuers that have a designated amount for working capital (95%) supersede issuers in the growth opportunities group (90%). These results suggest that issuers can consider intended use of IPO proceeds information as a signal mechanism and potential investors can as well consider the information useful before making their investment decisions.


IPO proceeds, Growth opportunities, Debt repayment, Working capital

Full Text: PDF

DOI: 10.22146/gamaijb.34872


Abdul Rahim, R. A., & Che-Embi, N. A. (2013). Initial returns of Shariah versus non-Shariah IPOs. Jurnal Pengurusan, 39.

Abdul Rahim, R., Che Embi, N. A., & Yong, O. (2012). Winner’s curse and IPO initial performance: New evidence from Malaysia. International Journal of Business and Management Studies, 4(2), 151–159. Retrieved from’S+CURSE+AND+IPO+INITIAL+PERFORMANCE:+NEW+EVIDENCE+FROM+MALAYSIA#3

Ahmad-Zaluki, N. A., Campbell, K., & Goodacre, A. (2011). Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance. The International Journal of Accounting, 46(2), 111–137. doi:10.1016/j.intacc.2011.04.001

Ahmad-Zaluki, N. A., & Kect, L. B. (2012). The investment performance of MESDAQ market Initial Public Offerings (IPOs). Asian Academy of Management Journal of Accounting and Finance, 8(1), 1–23.

Ahn, H., & Nam, D. (2013). Do new ventures really use proceeds as intended? proceeds, lock-up expiration, and firm innovation (Interactive paper). Frontiers of Entreprenuership Research, 33(3). Retrieved from

Andriansyah, A., & Messinis, G. (2016). Intended use of IPO proceeds and firm performance: A quantile regression approach. Pacific-Basin Finance Journal, 36, 14-30.

Autore, D. M., Boulton, T. J., Smart, S. B., & Zutter, C. J. (2014). The impact of institutional quality on initial public offerings. Journal of Economics and Business, 73, 65–96. doi:10.1016/j.jeconbus.2014.01.002

Balatbat, M. C., & Bertinshaw, S. . (2008). Use of proceeds disclosures in IPO prospectuses : do issuers come clean ? The FINSIA Journal of Applied Finance, (2), 17–22

Bhabra, H. S., & Pettway, R. H. (2003). IPO prospectus information and subsequent performance. Financial Review, 38(3), 369–397. doi:10.1111/1540-6288.00051

Black, B. S., & Gilson, R. J. (1998). Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics, 47, 243–277. doi:10.1016/S0304-405X(97)00045-7

Block, J., & Sandner, P. (2009). What is the effect of the financial crisis on venture capital financing? Empirical evidence from US Internet start-ups. Venture Capital, 11(4), 295-309.

Carpenter, R. E., & Rondi, L. (2006). Going public to grow? Evidence from a panel of Italian firms. Small Business Economics, 27, 387–407. doi:10.1007/s11187-005-4323-3

Chemmanur, T. J., & Fulghieri, P. (1999). A Theory of the Going-Public Decision. The Review of Financial Studies, 12(2), 249–279.

Chemmanur, T. J., & He, J. (2011). IPO waves, product market competition, and the going public decision: Theory and evidence. Journal of Financial Economics, 101(2), 382–412. doi:10.1016/j.jfineco.2011.03.009

Ferris, S. P., Hao, Q., & Liao, M. Y. (2013). The effect of issuer conservatism on ipo pricing and performance. Review of Finance, 17, 993–1027. doi:10.1093/rof/rfs018

Hanley, K. W., & Hoberg, G. (2010). The Information Content of IPO Prospectuses. Review of Financial Studies, 23(7), 2821–2864. doi:10.1093/rfs/hhq024

Hill, P. (2008). Declared investment plans and IPO firm value. Applied Financial Economics, 18(1), 23–39. doi:10.1080/09603100601007131

Huyghebaert, N., & Van Hulle, C. (2006). Structuring the IPO: Empirical evidence on the portions of primary and secondary shares. Journal of Corporate Finance, 12(2), 296-320.

Jensen, M. C., & Meckling, W. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs y Ownership Structure. Journal of Financial Economics, 3, 305–360. doi:Doi: 10.1016/0304-405x(76)90026-x

Jelic, R., Saadouni, B., & Briston, R. (2001). Performance of Malaysian IPOs: Underwriters reputation and management earnings forecasts. Pacific-Basin Finance Journal, 9(5), 457–486. doi:10.1016/S0927-538X(01)00013-0

Kim, J. B., Krinsky, I., & Lee, J. (1993). Motives for going public and underpricing: New findings from Korea. Journal of Business Finance & Accounting, 20(2), 195-211.

Kim, W., & Weisbach, M. S. (2008). Motivations for public equity offers: An international perspective. Journal of Financial Economics, 87(2), 281–307. doi:10.1016/j.jfineco.2006.09.010

Kok, C., & Ngui, Y. (2012). Malaysia ’ s IHH jumps 14 percent as world ’ s No . 3 IPO debuts jam. Reuters, pp. 4–7. Kuala Lumpur/Singapore. Retrieved from

Latham, S., & Braun, M. R. (2010). To IPO or Not To IPO: Risks, Uncertainty and the Decision to Go Public. British Journal of Management, 21(3), 666–683. doi:10.1111/j.1467-8551.2010.00707.x

Leone, A. J., Rock, S., & Willenborg, M. (2007). Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings. Journal of Accounting Research, 45(1), 111–153. doi:10.1111/j.1475-679X.2006.00229.x

Loughran, T., Ritter, J. R., & Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 3(1), 139–140. doi:10.1016/0927-538X(95)99082-D

Low, S. W., & Yong, O. (2013). Initial public offerings and investor heterogeneity: evidence from Malaysia. American Journal of Finance and Accounting 16, 3(1), 41-56.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics. doi:10.1016/0304-405X(84)90023-0

Pagano, M., Panetta, F., & Zingales, L. (1996). The stock market as a source of capital: Some lessons from initial public offerings in Italy. European Economic Review, 40, 1057–1069. doi:10.1016/0014-2921(95)00115-8

Pagano, M., Panetta, F., & Zingales, L. (1998). Why Do Companies Go Public ? An Empirical Analysis. The Journal of Finance, LIIl(1), 27–64. Retrieved from

Pastor, L., Taylor, L. A., & Veronesi, P. (2009). Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability. Review of Financial Studies, 22(8), 3005–3046.

Pastor, Ľ., & Veronesi, P. (2005). Rational IPO waves. Journal of Finance, 60(4), 1713–1758. doi:10.1111/j.1540-6261.2005.00778.x

Rajan, R. G. (1992). Insiders and Outsiders: The Choice between Informed and Arm’s-Length Debt. The Journal of Finance, 47(4), 1367–1400. doi:10.1111/j.1540-6261.1992.tb04662.x

Ritter, J. ., & Welch, I. (2002). A Review of IPO Activity, Pricing, and Allocations. Journal of Finance, 57(4), 1795–1828. doi:10.2307/3094524

Röell, A. (1996). The decision to go public: An overview. European Economic Review, 40(32), 1071–1081. doi:10.1016/0014-2921(95)00114-X

Rydqvist, K., & Hogholm, K. (1995). Going public in the 1980s: Evidence from Sweden. European Financial Management, 1(3), 287–315.

Singh, A. (1995). Corporate financial patterns in industrialising economies: a comparative international study. IFC Technical Paper (2), pp. 1-34.

Subrahmanyam, A., & Titman, S. (1999). The Going-Public Decision and thedevelopment of financial markets, LIV(3), 1045–1082.

Venkat, P. R., & Gangopadhyay, A. (2012). Malaysia IPO Ranking to Struggle in ’13. Deal Journal, 12–14. Retrieved from

Wyatt, A. (2014). Is there useful information in the ‘use of proceeds’ disclosures in IPO prospectuses?. Accounting & Finance, 54(2), 625-667.

Yeow, E.G. (2013) June 10th, 2013 "Big is not always beautiful with IPO documents" The Straits Times. Corporate Governance in Malaysia: Make IPO documents readable

Zingales, L. (1995). Insider ownership and the decision to go public. The Review of Economic Studies, 62(3), 425-448.


  • There are currently no refbacks.

Copyright (c) 2021 Gadjah Mada International Journal of Business

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.