Does Shareholder Retention Matter in Explaining the Under-Pricing Phenomenon of Malaysian IPOs?

This paper investigates the influence of shareholders' retention on the performance of initial public offerings (IPOs) in Malaysia between 2001 and 2010. Based on a sample of 295 IPOs listed in Bursa Malaysia, we find that pre-IPO shareholders' ownership or retention averages 73% and has a negative relationship with the IPO performance. This finding is consistent with the signaling model, which argues that a reduction in the proportion of original owners' shareholding or retention signals the higher risk of such firms. In other words, the market interprets original shareholders' lower retention as reflecting their lack of confidence in their firms' future prospects