Nurwati A. Ahmad-Zaluki

Corporate Governance and Earnings Forecasts Accuracy

Purpose - This paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance mechanisms and earnings forecasts accuracy. It seeks to investigate whether effective corporate governance is a credible signal of improving the quality of financial information. Design/methodology/approach - A sample of 235 IPO companies that went public during the period 1999-2006 was used. Absolute forecast error was used to proxy for earnings forecast accuracy and to represent financial disclosure quality. Findings - Companies with a higher percentage of non-executive directors in the audit committees and larger audit committee size exhibit greater forecast accuracy. The accuracy of IPO earnings forecast is also positively influenced by the use of brand-name auditor. Practical implications - The results suggest that effective corporate governance is a credible signal of improving the quality of financial information. The role of audit committee as financial monitors as suggested by the agency theory supports this paper. Originality/value - The results are consistent with the belief that effective corporate governance is associated with higher financial disclosure quality. The results also support the decisions made by Malaysian regulators such as the Securities Commission to enhance the quality of financial disclosure by revising the Malaysian Code on Corporate Governance to encourage public companies to implement good governance practices such as audit committee independence.

The pre‐ and post‐IPOs gender composition of board of directors in Malaysia

Purpose – The purpose of this paper is to investigate the gender composition of the board of directors of Malaysian initial public offering (IPO) companies. This study also examines the business case for having women on boards.Design/methodology/approach – Using a sample of 228 IPO companies that went public during the period 1999‐2006, this study tracks the changes in the gender composition of these companies prior to the IPO year, IPO year and three‐year post‐IPOs. This study also tracks the changes in the gender composition between the pre‐IPO period and some 5 to 12 years later after the IPOs for a subsample of 89 companies that appear as top 500‐companies on the Malaysian Stock Exchange (Bursa Malaysia) in 2011. The compounded buy‐and‐hold returns method is used to measure the post‐IPO company performance.Findings – This study finds that female representation as board of directors in 228 Malaysian companies prior to the IPO is only about 8 percent. This percentage is almost similar for the subsequent...

The effect of underwriter’s market share, spread and management earnings forecasts bias and accuracy on underpricing of Malaysian IPOs

Purpose - – Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of underwriter’s market share and spread on the underpricing of IPOs; and second, it investigates the effect of management earnings forecasts bias and accuracy on the underpricing of IPOs. Design/methodology/approach - – A sample of 190 Malaysian IPOs listing on the main market of Bursa Malaysia from January 1, 2002 to February 29, 2012 was used and collected data were analyzed through univariate analysis and pooled ordinary least squares regression. Findings - – The empirical evidence shows that IPOs underwritten by underwriters as having high market share and charging low underwriting spread experience higher level of underpricing. The paper also finds that IPOs issued more biased earnings forecasts are related with severe underpricing. Finally, this paper reveals that the more accurate the earnings forecasts are, the more minimized will be the asymmetric information and hence, the less will be IPO underpricing. Practical implications - – The paper has some implications for policy makers, investors and underwriters. First, this study offers some insights for policy makers who are responsible for Malaysian financial markets current reforms. Further, knowing the importance of the economic outcomes of the earnings forecasts on underpricing for policy makers, they may adopt the findings in their discussion of costs of litigation and potential modifications in the requirements of issuing earnings forecasts. For the investors, findings may improve their understanding of equity valuation and for the underwriters, it would assist them in identifying underwriting cost. Originality/value - – This paper is considered the first study to extend IPO literature by investigating the relationships between underwriter’s market share, underwriter’s spread, earnings forecasts bias, earnings forecasts accuracy and IPO underpricing in an emerging country, such as Malaysia.

The effect of disclosure regulation on the bias and accuracy of management earnings forecasts in Malaysian IPO prospectuses

Purpose This paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of Malaysian initial public offering (IPO). Specifically, the authors investigated the two environments of regulation (mandatory versus voluntary) to draw some conclusions regarding the benefits of regulating disclosure of management earnings forecasts. Design/methodology/approach A sample of 111 Malaysian IPOs listing on the Main Market of Bursa Malaysia from January 1, 2004 to February 29, 2012 was used. The paper uses both univariate and multivariate statistical analyses on this sample of IPOs. Findings The empirical results of these multivariate regressions indicated that disclosure regulation has positive and significant impact on the bias and accuracy of management earnings forecasts disclosed in IPO prospectus. In general, the study results suggest that using disclosure regulation to improve the quality of IPO earnings forecasts can be, to some extent, an effective strategy. Practical implications The findings of this study have important implications for regulators and investors. The findings can provide them some relevant insights on the improvements to the earnings forecasts accuracy and trends of the forecast (optimistic or pessimistic) after the change from mandatory to voluntary disclosure. Thus, the authorities may learn whether this change is an effective policy or whether the regime of mandatory disclosure was better for IPO companies and should be reversed. Originality/value This study is regarded as the first attempt to investigate the impact of reforms in disclosure regulation on the quality of management earnings forecasts of IPO prospectuses in a developing nation such as Malaysia. In spite of this, the paper focuses on a single country, and it contributes significant insights to the debate about the credibility of IPO management earnings forecasts.

The determinants of involuntary delisting rate in the Egyptian IPO equity market

Purpose - – The purpose of this paper is to examine the determinants of involuntary delisting rate for the Egyptian initial public offerings (IPOs) issued over the period 1992-2009. Design/methodology/approach - – A definition of survival time that considers the date when the new Egyptian listing rules were enforced to track delisting status for each IPO firm for five survival years is relied on. Binary logit regression analysis is used to identify these determinants. Total sample is divided into two subsamples: the first subsample covers the period from 1992 to 2004. It is used to estimate the logit equations and to predict delisting status of firms included in the second subsample, which covers the period from 2005 to 2009. Findings - – The probability of involuntary delisting decreases significantly with the increase in firm size, institutional ownership, assets growth rate, operating efficiency, offering size, initial returns and insider ownership. However, it increases significantly in IPO firms with high financial leverage. Based on the estimated logit regression equations, the status of the six firms included in the second subsample are correctly predicted. Practical implications - – The results provide several implications for investors, issuing firms and setters of listing rules. Originality/value - – This study uses new variables, such as firm type, institutional ownership and listing variables. In addition, several theories are tested and supported.

Explaining IPO initial returns in Malaysia: ex ante uncertainty vs signalling

Purpose - The purpose of this paper is to investigate whether proxies considered under Design/methodology/approach - This study uses solely Findings - The results show that for Research limitations/implications - These findings suggest that theoretical explanations of the Originality/value - This study fulfils the need for finding an appropriate theory that better explains IPO initial returns in the Asian IPO market by focussing exclusively on the pre-IPO information available in the prospectus. It also sheds light on important selected pre-listing information.

CEO characteristics and the amount of capital raised in Malaysian IPOs

This study examines the impact of the characteristics of the Chief Executive Officer (CEO) on the amount of capital raised in the Malaysian Initial Public Offering (IPO) market. To have a broader picture of the impact, the current study employs the Ordinary Least Squares (OLS) and quantile regression techniques, using a sample of 214 IPOs over the period of 2005-2015. The use of the quantile regression technique allows the study to estimate the impact of the CEOs characteristics at different quantiles of the conditional distribution of the capital raised. The results show that companies with a Malay CEO raise more capital than those companies with a non-Malay CEO. In addition, CEO age is significant and negatively associated with capital raised. However, the impact of CEO educational qualification is mixed, while CEO gender is insignificant. Other variables, such as company size and pre-IPO financial health, have significant and positive impact on capital raised. The practical implication of the study is that the characteristics of the CEO play a signalling role in IPO decisions. As such, investors can consider the characteristics of the CEO before making investment decisions.

The role of the gender diversity of audit committees in modelling the quality of management earnings forecasts of initial public offers in Malaysia

Purpose Presently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit committees. This study aims to examine the impact of gender diversity in audit committees on the accuracy of management earnings forecasts disclosure in initial public offering (IPO) prospectuses. Design/methodology/approach The study sample comprises 190 Malaysian companies issuing IPOs that transformed into public companies during the period 2002-2012. Earnings forecasts accuracy (quality) is proxied by absolute forecast error and the study model is developed based on the frameworks of the signalling theory, the agency theory and the resource-dependence theory. Findings The study proposes that female directors introduce a set of specific features in the boardroom that serve to improve investor protection and efficient monitoring of management. However, findings reveal an insignificantly positive relationship between gender diversity in audit committees and absolute forecast error, which shows that more female directors in audit committees could translate into more errors and less accuracy in earnings forecasts. Practical implications Considering the recent regulatory developments that encourage the number of women on the board of directors, the findings obtained have significant implications for policymakers. The study findings can also be invaluable to investors, investment analysts, market players and researchers. Originality/value The composition of the board of directors and audit committees in terms of gender plays a significant role in the promotion of effective corporate governance practices. This study is one of the pioneering studies that examines the advantages of gender diversity in the board of directors. It is also the first study to extend IPO literature by investigating the role of gender diversity in audit committees in the enhancement of accurate management earnings forecasts included in the IPO prospectuses.