Impact of Risk Disclosure on Underpricing and Deal Attributes of Initial Public Offerings and the Moderating Role of Lock-Up Provisions in Malaysia

Tee, Yuan Ven (2026) Impact of Risk Disclosure on Underpricing and Deal Attributes of Initial Public Offerings and the Moderating Role of Lock-Up Provisions in Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

An initial public offering (IPO) refers to the first issuance of a firm’s shares to the public on a stock exchange. IPOs provide firms with access to public equity markets and broader financing opportunities. However, IPO pricing remains challenging due to information asymmetry between issuers and investors. In this context, prospectus disclosure, particularly risk factor disclosure, plays an important role in reducing uncertainty and supporting investors’ decisionmaking. IPO deal attributes, such as gross spread, underwriting fees and management fees, are also determined through negotiations between issuers and investment banks, where perceived issuer risk, listing board choice and adviser service quality may influence fee determination. In Malaysia, the IPO market is further distinguished by mandatory lock-up provisions, unlike developed markets where such arrangements are generally voluntary. Against this background, this study examines the impact of risk disclosure on IPO underpricing and IPO deal attributes, as well as the moderating role of lock-up provisions on these relationships by drawing on a sample of 137 IPOs listed on the Main Market and ACE Market of Bursa Malaysia from 2020 to 2024. The empirical analysis is conducted using pooled ordinary least squares method. According to the research findings, overall risk disclosure has a positive but statistically insignificant relationship with IPO underpricing, while only internal risk disclosure is positively and significantly associated with IPO underpricing. By contrast, overall risk disclosure and all individual risk disclosure categories have no significant relationship with IPO deal attributes. In terms of the moderating role of lock-up provisions, this study reveals that for IPOs with higher lock-up ownership, greater disclosure of investment risk is associated with higher IPO underpricing. As regards IPO deal attributes, for IPOs with longer lock-up period, greater disclosure of external risk is associated with less IPO deal attributes. Conversely, for IPOs with higher lock-up ownership, greater disclosure of investment risk is associated with more IPO deal attributes. Several important implications can be drawn from this study. First, this study provides policymakers with important guidance to refine IPO guidelines on risk disclosure and lock-up provisions. Furthermore, this research may assist investment banks in improving IPO pricing and deal structuring. Additionally, this study offers insights to issuers on how risk disclosure and lock-up arrangements influence IPO costs, valuation and investor confidence. Last but not least, this research may help investors in assessing IPO risks, issuer quality and the significance of lock-up provisions prior to investing.