Investor protection mechanisms and IPO valuation on the Kuala Lumpur stock exchange

Abstract

Extending the previous work on IPO pricing and initial market valuation, this study explores the role of profit guarantee as an investor protection mechanism and assesses its valuation impact. Using 239 Malaysian IPOs between l 994 and 2000, the main findings are: I) the imposition of investor protection mechanisms by the IPO regulator on the major shareholders of IPO firms has some influences on IPO valuation, 2) the IPO price-setter and outside investors attach great importance to earnings forecasts in valuing IPO firms and 3) structural differences exist in the determination of IPO pricing under merit-based and disclosure-based regulation frameworks.