Impact of cash holding and debt position on IPO underpricing

Abstract

This study investigates the impact of cash holdings and debt levels on IPO underpricing in the Malaysian market, aiming to provide insights into the relationship between capital structure components and IPO performance. Using IPO prospectuses from Bursa Malaysia, the research examines 225 IPOs listed on the Main Market from 2005 to 2019 through descriptive statistics and cross-sectional regression analysis. The findings reveal a significant positive relationship between cash holdings and underpricing, highlighting liquidity and growth signaling benefits, while debt levels exhibit an insignificant and negative effect, challenging traditional agency theory. These results emphasize the critical role of financial decisions in influencing investor perceptions during IPOs. The study contributes to the literature by addressing the limited exploration of cash and debt factors in IPO contexts and offers valuable implications for corporate financial strategy and investor decision-making in emerging markets.