Impact of Digitalisation and Sustainability Disclosures on Initial Public Offering Performance in Malaysia

Looi, Shin Nye (2024) Impact of Digitalisation and Sustainability Disclosures on Initial Public Offering Performance in Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Digitalisation has become a global phenomenon, transforming firms’ prospects and creating new avenues for growth and value creation. The Malaysian government has also launched numerous digitalisation-related initiatives. Under signalling theory, companies will disclose their digitalisation, sustainability-related or any information that benefits the companies to signal their growth potential to the public. Past empirical studies have shown digitalisation improves firms’ performance by increasing their firm competitiveness eventually resulting in profit improvement but lacked studies conducted on digitalisation disclosure’s effect on the Initial Public Offering (IPO) market. In the IPO market, IPO performance after the listing is not easy to predict and findings show there is often underperformance in the long term. Hence, understanding the impact of digitalisation disclosure on IPO performance is crucial for informing investor decisions and company strategies both pre- and post-IPO, particularly in light of the IPO’s long-run performance. That being said, to identify the relationship, this study aims to examine the relationship between digitisation disclosure and IPO performance and the moderating role of sustainability disclosure on this relationship. This research is conducted based on the IPOs listed in Bursa Malaysia main and ACE market from 2016 to 2021 in Malaysia. Moreover, this study investigates IPO performance in both the long and short-run to have a more comprehensive understanding. The pooled ordinary least squares method is used in this research to carry out the analyses. Based on the reported results, this study concludes that digitalisation disclosure is insignificant to short-run IPO performance, but has a significant negatively relationship with long-term IPO performance. The digitalisation paradox may explain the result that shows digitalisation disclosures are insignificant in the short-run but will reduce IPO long-run performance. Moreover, younger firms and better market conditions at the time of listing will generate a better IPO short-run performance. Lower digitalisation disclosure, bigger firm size, younger age, lower offer size and IPOs without private placement involvement generate a better IPO performance. Furthermore, regarding short-run IPO performance, sustainability disclosure negatively moderates the relationship between digitalisation disclosure and IPO short-run performance. Meanwhile, for long-run performance, sustainability disclosure positively moderates digitalisation and IPO long-run performance. As in the short-run, lacked clear digitalisation and sustainability strategies from IPO firms and higher costs incurred in the initial stage might discourage the public causing the poor performance. However, in the long-run, sustainability will weaken the negative impact of digitalisation and IPO performance as sustainability disclosure will counteract the digitalisation drawbacks. Greater sustainability disclosure signal firms’ long-run growth potential to the investors and reduce information asymmetry in line with the signalling theory and stakeholder theory. Hence, this result suggests that high sustainability disclosure can mitigate the potential drawbacks from digitalisation and combining both disclosures are good for long-run IPO performance. Findings from this research give rise to a few research implications. For instance, understanding the significance of digitalisation for IPO performance, can guide policymakers in updating the capital market IPO disclosure requirements and also make necessary improvements to the digitalisation initiatives such as MyDIGITAL. Apart from that, this study highlights the importance of IPO firms’ managers to manage their firms’ strategies and policies in enhancing their IPO performance and maintaining their competitiveness in the market. Last but not least, investors can gain clearer insights into their investment decisions when considering IPO subscriptions.