ESG practices disclosure and initial performance of Malaysian IPOs

• Published in: Investment Management and Financial Innovations
• Main Author: Alyasa-Gan S.S.; Che-Yahya N.; Bahrudin N.Z.
• Format: Article
• Language: English
• Published: LLC CPC Business Perspectives 2024
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85201579747&doi=10.21511%2fimfi.21%283%29.2024.17&partnerID=40&md5=66597f0b273918ce85eea6743895771c

Companies' decision to go public is risky because of the high uncertainty level from the companies' unknown history prior to their listing. Recent studies in the Malaysian market reported the declining trend of companies' initial performance, relating it to investors' current demand for higher information transparency that can reflect companies' sustainable evolution as a means to attract their demand in subscribing newly issued shares. Thus, this study aims to investigate the impact of disclosing ESG practices on companies' initial performance. Using a linear regression with maximum likelihood (ML) estimation, this study examines 171 initial public offerings (IPOs) issued in the Malaysian market from 2015 to 2023. By using two ways of measuring companies' initial performance (offer-to-open and offer-to-close), the findings show that higher information disclosure on ESG practices will only be reflective and positively affect companies' performance by the end of the day. Further examination of individual ESG pillars indicates that environmental disclosures negatively influence companies' initial performance, while social and governance disclosures positively influence companies' initial performance. A large investment in maintaining a high level of environmental practice can be costly, negatively influencing companies' performances. Higher social and governance disclosure attracts socially conscious investors and reflects good internal governance, increasing demand for the companies' shares during the IPO and positively influencing companies' performances. This study contributes to the growing literature concerning ESG and post-IPO performances specific to the Malaysian market and proposes recommendations on the importance of disclosing ESG practices prior to their IPO. © Siti Sarah Alyasa-Gan, Norliza Che-Yahya, Nur Zahidah Bahrudin, 2024.