Does Time Frame of IPO Proceeds Predict Survival of Firms? Evidence from the Malaysian Market

Abstract

Initial public offering (IPO) information disclosures such as the IPO proceeds’ strategic uses and the time frame have the potential to signal the listing firms’ post-IPO survival. We investigate the impact of IPO proceeds on 423 firms’ ability to maintain survival in business in Malaysia from 2000 to 2014. With a median survival span of approximately 104 months, our examination of survival data reveals that more than 40% of the firms in our sample had trouble surviving after their seventh year of listing. Our findings indicate that the share of IPO proceeds and the firms’ time horizon may be used to forecast whether or not they will survive, with meeting financial obligations serving as the primary motivating factor. A major fraction of IPO proceeds used for growth motives and financial obligations lead to shorter survival, while a longer time frame to meet the obligations leads to longer post-IPO survival. Our findings offer empirical support for regulators to safeguard investors’ interests and enhance firms’ survival in an environment with developing markets; information disclosure requirements include both the use of IPO proceeds and the time frame for its utilization.

Keywords

Emerging markets initial public offerings IPO proceeds utilization Malaysia survival analysis time frame of proceeds

1. Introduction

A frequent stock markets’ issuance that might go against the interest of investor and obstruct the future success of a firm is the lack of openness in revealing information about initial public offering (IPO) proceeds. Policymakers mandate information disclosure of proceeds utilization in firms’ IPO prospectus prior to their listing. The information consists of the strategic purpose of raising an amount of proceeds allocated for certain utilizations and time frames in different activities (i.e., growth, financial obligations, and working capital) to ensure high information transparency, thereby protecting investors’ interests. Previous research has shown that the utilization of IPO proceeds has an impact on the underpricing of firms (Leone et al., 2007; Ljungqvist & Wilhelm, 2003) and post-IPO performance (Ahmad-Zaluki & Badru, 2020; Andriansyah & Messinis, 2016; McGuinness, 2019). Nonetheless, little is currently understood about how the timing and dynamic use of the IPO proceeds might affect the post-IPO survivability of firms. Examining a firm’s survivability provides an unambiguous performance assessment that takes a firm’s time-to-survive¹ into consideration, despite the notion that it seems consistent with post-IPO performance. According to Wyatt (2014), Australian firms have a better chance of surviving if more information about IPO proceeds is disclosed. Meanwhile, in the United States, Amor and Kooli (2017) discovered that businesses prioritizing meeting financial obligations escalated the prices of their stocks, which harms the market and reduces their chances of surviving. To our knowledge, the scholarly literature has not yet examined the firms’ ability to survive from the perspective of the time frame to utilize the raised proceeds.

Wyatt (2014) and Amor and Kooli (2017) suggested the IPO proceeds’ strategic use in their studies but only highlighted the fraction of IPO earnings disbursed to directed activities. Unlike in other markets, the Securities Commission of Malaysia (SCM) specifically highlights the importance of disclosing the percentage of IPO proceeds and the time frame to use the IPO proceeds, leading us to suggest the two pieces of information pertaining to IPO proceeds as determining drivers for a firm’s longevity. The “time frame of proceeds usage” is one of the factors we suggest impacts a firm’s ability to survive for many different reasons. First, since developing IPO markets have poorer regulatory frameworks than established markets (Mehmood et al., 2021), there is a greater information asymmetry in these markets. As a result, more salient firm information may boost investor confidence when making investment selections (Yaakub et al., 2018). Next, it possibly plays a commitment role in firms’ leadership to shrink time-varying agency costs (e.g., corporate middle-management turnover) in achieving the proposed business strategy for the IPO capital raise. Third, firm analysts can use the time frame of IPO proceeds to monitor firms’ performance and adherence to the business strategy proposed during the IPO to highlight any changes to the firms’ strategy as they occur. Lastly, securities authorities emphasize the need for timely and comprehensive information exposed in the IPO prospectus. Therefore, to safeguard the firm’s sustainability after the IPO, the Malaysian capital market regulator, that is, the SCM, recognizes the dynamic significance that time plays in a corporate strategy.

In most firms’ prospectuses, the main categories of IPO proceeds allocations are growth motives, meeting financial obligations, and working capital funding (Ahmad-Zaluki & Badru, 2020). Depending on each firm’s strategy, the amount and timing of using the IPO proceed assigned to each category differ. Firms with a higher priority of using IPO funds for growth motives may promote stronger and more sustained investor engagement as investors want to accumulate wealth. In order to generate value and acquire enough capital, according to Varghese et al. (2020), businesses should prioritize investments. Thus, we propose that the survival of firms is positively correlated with a greater fraction and a longer time frame for growth motives. However, meeting financial obligations and the need for working capital indicates that future cash flows will be uncertain and that the future path will be left unclear (Amor & Kooli, 2017). Thus, a greater percentage and longer time frame to meet financial obligations and working capital funding should be detrimental to firms’ ability to survive. Our hypotheses are as follows:

H₁: IPO proceeds allocated for growth motives (strategic use and time frame) will positively influence firms’ survival time.

H₂: IPO proceeds allocated for financial obligations (strategic use and time frame) will negatively influence firms’ survival time.

H₃: IPO proceeds allocated for working capital (strategic use and time frame) will negatively influence firms’ survival time.

We examine our hypotheses using the survival analysis approach. Our overall evidence suggests that growth motives and meeting financial obligations are critical drivers of firms’ survival in the Malaysian market. Our results align with the regulatory requirements (specifically, by the SCM), accentuating that information disclosure is critical in addressing investor uncertainty and anticipating firms’ post-IPO survival. Unlike corporate insiders who have unrestricted access to the firms’ information, one way for firms to indirectly project information on their survival prospects to external investors is from higher information disclosure of their IPO in the prospectus. Accordingly, the disclosure of IPO proceeds’ strategic use and time frame assists investors (i.e., long-term investors) in making more informed investment decisions.

We add to the scant but increasing body of knowledge on survival analysis technique and its employment in developing markets. Iwasaki and Kočenda (2019) look at factors such as ownership, operational performance, financial indicators, and democracy index to determine if service firms would survive in European countries. According to Baluja (2018), the size of the firm is vital for post-IPO survival when explaining the survival of IPOs in the Indian market. In the Malaysian market, Shari (2019) employs the Kaplan–Meier test; nonetheless, since the factors influencing firm survival are not taken into account, the use of the approach is only applicable to a descriptive statistical study. In order to forecast a firm’s long-term survivability, Ahmad et al. (2021) highlight that ex ante strategic prospectus information is essential. We suggest that the empirical findings in our study on the Malaysian dataset is a generalizable representation of IPO firms’ survivability in emerging markets, especially given the mixture of IPO characteristics of firms listed on Bursa Malaysia and other emerging markets, such as market segregation (i.e., large- and small-sized firms), listing requirements, prospectus guidelines (i.e., mandatory disclosure of IPO proceeds’ information), and delisting regulations.

2. Data and Sample Construction

We begin with 527 firms in our dataset. Following Mohd-Rashid et al. (2014) and Che-Yahya and Abdul-Rahim (2019), we exclude 25 firms classified as Real Estate Investment Trusts, financial institutions, and insurance firms due to differences in regulatory frameworks and presentation of financial statements. The exclusions include firms with secondary share offerings whereby the proceeds from the IPO are disbursed to the initial shareholders. In these scenarios, the IPO proceeds are imputed as zero. After implementing the exclusion process, our final sample consists of 423 firms listed in the Main and ACE Market in Bursa Malaysia.

Since the SCM took over the Registrar of Firms’ prospectus registration process in 2000, our dataset began at that time (ROC). The SCM demanded a thorough information revelation regarding the allocation of IPO proceeds, mandating the proceeds in monetary value (i.e., percentage) as well as the timeline for proceeds utilization (time frame) to each category (e.g., growth motives, meeting financial obligations, or working capital).

We conclude the sample period on August 31, 2014, to accommodate the seven-year monitoring of firms’ survivability from January 1, 2000, observed until August 31, 2021. As the Main Market is established as a combination of the Main Board and Second Board, we treat the firms listed on the two listing boards as Main Market participants. Similarly, firms listed in the MESDAQ Market from 2000 to 2008 are treated as ACE Market participants.

We classify the IPO proceeds for activities explicitly for growing the firm’s business and cash flow stream into a category while meeting financial obligations and working capital are left as a stand-alone variable.² Growth motives are chances that may improve a firm’s condition via investment, corporate growth, R&D, and the purchase of future assets. Meeting financial obligations is an activity that weakens a firm’s capital structure or reduces its credit risk while investing in working capital increases a firm’s cash on hand for general corporate purposes and day-to-day operations. Notably, only a limited number of firms particularly highlight stock investments in their prospectuses. Thus, we take these firms out of the dataset to prevent any intervention in the analysis and results.

3. Methodology

Post-IPO firms that maintain an active status and firmly adhere to all mandatory rules and standards are said to have survived. In other words, the surviving firms should be expanding significantly in terms of their operational and financial reliability. We designate non-surviving firms as firms that do not meet the listing standards, acquired or merged, or are listed in the PN17 or GN3 frameworks. We employ the survival analysis model to include binary information estimation and the length of time a firm survives from its listing date. Moreover, survival analysis assumes that data are not normally distributed to accommodate the censored (right censored) observation and estimates the firms’ time-to-survive for each observation (censored or uncensored) (Allison, 2000).

We first estimate the survival rate nonparametrically. The Kaplan–Meier model is used to calculate the survival rate of the sample within the data set. The nonparametric survival analysis model is employed to assess the variation in firms’ survival rates by categories of IPO proceeds (strategic use and time frame). Then, the survival time estimation (regression model) is conducted using the Accelerated Failure Time (AFT) model. We adopt the AFT model to focus on survival time. The AFT model collects both the time-to-survive and censored data to guarantee that the calculation of a firm’s survival time is constant. Typically, the survival time is translated to a natural logarithm and specified as a log-linear function (Bradburn et al., 2003), specified as follows:

\begin{array}{l} L n (S T_{i}) = α + β_{1} S U G_{i} + β_{2} S U F_{i} + β_{3} S U W_{i} + β_{4} T F G_{i} + β_{5} T F F_{i} + β_{6} T F W_{i} + \\ β_{7} I N O P_{i} + β_{8} S I Z E_{i} + β_{9} O S R_{i} + β_{10} S H A R E S_{i} + β_{11} H O T_{i} + ε_{i} \end{array}

(1)

Ln (ST_i) is the time-to-survive (in months) translated in the natural logarithm, and the independent variables are explained in Table 1. The strategic use of IPO proceeds is computed using three different measures and expressed in percentage: the strategic use of IPO proceeds for (i) growth motives (SUG), (ii) financial obligations (SUF), and (iii) working capital (SUW). The time frame of proceeds utilization is also computed using three different measures and expressed in months: time frame of proceeds utilization for (i) growth motives (TFG), (ii) financial obligations (TFF), and (iii) working capital (TFW).

Table 1.

Summary of Measurement for Each Variable.

Variables	Notation	Definition	Measurements
Survival time	ST	Time-to-survive (months)
Survival time	ST	Binary variable (“1” or “0”)	= IF, Censored = “1” IF, Non-censored = “0”
Main Independent Variables
Strategic use for growth motives	SUG	IPO proceeds for growth activities (%)	$= \frac{G R O M_{i}}{T O T P R O_{i}} \times 100$
Strategic use for financial obligations	SUF	IPO proceeds for capital restructuring (%)	$= \frac{F I O B_{i}}{T O T P R O_{i}} \times 100$
Strategic use for working capital	SUW	IPO proceeds for general corporate purposes (%)	$= \frac{W O C A_{i}}{T O T P R O_{i}} \times 100$
Time frame for growth motives	TFG	Growth motives utilization (months)	$= T F_{g, i}$
Time frame for financial obligations	TFF	Meeting financial obligations utilization (months)	$= T F_{f, i}$
Time frame for working capital	TFW	Working capital utilization (months)	$= T F_{w, i}$
Other Independent Variables
Initial performance	INOP	Initial return (%)	$= \frac{P O P E N_{i} - P O F F_{i}}{P O F F_{i}} \times 100$
Risk of firm	SIZE	Market capitalization (Ln)	$= [L n_{i} (N O S_{i} \times P O F F_{i})]$
Quality of firm	OSR	Oversubscription ratio (times)	$= \frac{S u b s c r i p t i o n_{i}}{N O S I_{i}}$
Shareholders retention	SHARES	Insiders ownership (%)	$= \frac{P R E S H A R E_{i} - O F F S A L E_{i}}{P R E S H A R E_{i} + I S S U E_{i}} \times 100$
Market sentiment	HOT	Total number of shares issued (units)	$= \sum_{i = 1}^{N} N O S H I_{i, t}$
		Average number of shares issued (units)	$= \frac{\sum_{i = 1}^{N} N O S I_{i, t}}{N}$
		Dummy Hot (“1” or “0”)	= IF, NOSL_t ≥ ANOSL_t = 1” IF, NOSL_t < ANOSL_t = “0”

We include INOP, representing the initial performance. It is measured by the initial return of each firm using the percentage difference between the opening price and the offering price. SIZE represents the firm’s risk, measured by its size, that is, the total number of shares outstanding multiplied by IPO offer price (Ahmad & Jelic, 2014; Pommet, 2017; Yaakub & Sherif, 2019). The market capitalization value is transformed into a natural logarithm to reduce extreme values’ effect (Che-Yahya & Abdul-Rahim, 2019; Cirillo et al., 2017). OSR is the quality of the firm, measured using the oversubscription ratio. Highly subscribed shares are usually overpriced, with a higher allocation of shares for retail investors, indicating higher demand for shares (Abdul-Rahim & Che-Embi, 2013). SHARES is the shareholders’ retention to represent the certification of the insiders (board of directors and the top officers) to act aligning with the investors’ interest post-IPO. Lastly, HOT represents the periods with significantly greater numbers of newly issued shares in an IPO that are regarded as the “hot issue markets” condition (Ibbotson & Jaffe, 1975).

4. Results and Discussions

4.1 Descriptive Statistics

Table 2 observes that the mean of ST is 98.50 months, ranging from 1 month to a maximum of 256 months (21.33 years). There are, in total, 17 firms with ST of one month with difficulties to achieve the minimum level of liquidity from their sales of shares. We foresee the firms triggering the PN17 or GN3 criteria³ if the issue is prolonged. Investors will be less likely to consider such firms for their investment portfolio, and undersubscription will further deteriorate their survivability. Meanwhile, the maximum ST is at 256 months, which is the number of months for surviving firms listed from 2000 to survive ultimately until 2021.

Table 2 reports SUG with a mean of 39.87%, a minimum of 0% and a maximum of 96.09%. A lower mean is demonstrated for SUF at 16.46%, ranging from 0% to 87.25%. About the same range as SUG is SUW, with a mean of 38.24%, ranging from 0% to 100%. The mean exhibits in Table 2 imply that firms listed during the studied period largely allocate their strategic proceeds for growth motives and working capital. Consistent with past studies conducted in the Malaysian market (Abdul Rahman & Che-Yahya, 2019; Badru, 2021), firms listed in the Malaysian market prioritize their allocation of IPO proceeds to potentially grow their businesses through the usage of capital expenditure and working capital. To note, the minimum value of 0% for all categories of IPO proceeds’ strategic use is firms that do not allocate any amount of raised IPO proceeds to the particular category. The value of 100% for SUW indicates that the firms intend to utilize all of the raised IPO proceeds for unspecific reasons, reflecting an imprecise future direction for several Malaysian listed firms in the long run post-IPO.

Table 2.

Descriptive Statistics.

Variables	Mean	Median	Minimum	Maximum	Standard Deviation
ST (months)	98.50	92	1	256	77.14
SUG (%)	39.87	42.43	0	96.09	28.55
SUF (%)	16.46	0	0	87.25	22.32
SUW (%)	38.24	34.75	0	100	22.84
TFG (months)	16.66	18	0	48	12.32
TFF (months)	3.77	0	0	36	5.77
TFW (months)	13.22	12	0	48	9.50
INOP (%)	24.05	13.82	–68.13	288.89	40.84
SIZE (RM million)	537	97	16	23,000	2120
OSR (times)	27.27	12.56	–0.89	377.96	43.26
SHARES (%)	71.95	74.76	–58.77	100	16.46
HOT (D)	0.59	1	0	1	0.49

Notes: ST is the survival time. SU (TF) = IPO proceeds’ strategic use (time frame of proceeds utilization); G, F, and W that follows growth motives, financial obligations, and working capital, correspondingly. INOP = the initial return using the opening price; OSR = the quality of the firm, measured using oversubscription ratio; SIZE = the risk of firm, measured by the natural logarithm of market capitalization; SHARES = listing insiders’ retention; HOT = the market sentiment, estimated using the dummy value (1 for a hot market and 0, otherwise).

A significant difference for TFF can be recognized with mean of 3.77 months, spanning from a minimum of 0 months to a maximum of 36 months. Once more, TFW has a closer range mean to the TFG at 13.22 months, fluctuating from a minimum of 0 months to a maximum of 48 months.

4.2 Kaplan–Meier Stratified by Categories of IPO Proceeds

Table 3 reports the K-M model stratified by IPO proceeds’ strategic use and the time frame to utilize all categories. We categorize the firms’ survival rates to be below and above 50% for each group (i.e., a fraction of IPO proceeds below and above 50%). First, Panel A exhibits that the firms’ survival rates with SUG below 50% are consistently higher than firms with SUG above 50% throughout the observation period except in the second year post-IPO. We report that, on average, firms with higher SUG will experience extensive difficulties in maintaining their listing status in the long run than firms with SUG below 50%. SUG in Panel A indicates that in 104 months, half of the firms below 50% become non-survivors. We find that most firms (248 firms compared to 175 firms) limit their SUG below 50% upon listing. Although past studies find that firms listed in Bursa Malaysia prioritize their raised IPO proceeds for growth motives (Abdul Rahman & Che-Yahya, 2019; Badru, 2021), our further investigation reveals that Malaysian listed firms regularly allocate funds to their SUG below 50%.

Second, Panel A exhibits that the survival rate of firms above 50% of SUF is moderately higher than firms below 50% of SUF for the first five years post-IPO (85.71% to 61.22% and 81.28% to 59.63%). For the remaining two years, the survival rate of firms above 50% of SUF (55.10% to 48.98%) subsequently turns lower than firms below 50% of SUF (56.42% to 53.73%). According to Paleari et al. (2008), firms with high SUF can operate adequately in the initial subsequent years after listing but will face difficulties at a later stage, often when their debt is already paid off. They explain that since the initial objective of the firms is to reduce their credit risk, they use the IPO proceeds to meet their financial obligations quickly; however, if the underlying issues within the firm that caused the inability to pay down debt continue to be unresolved, the firms will access further debt financing in the future. As a result, they are left with excess debt, ultimately leading to business failure. We can also infer that although the survival rate of firms above 50% of SUF is predominantly higher in the first five years, firms with below 50% of SUF have a longer ST median by 22 months than firms with above 50% of SUF. This may explain the rationale for most firms (374 out of 423 firms) limiting their SUF below 50%.

Thirdly, Panel A also shows that firms above 50% of SUW have a higher survival rate only in the first year of listing by 2.31%. Subsequently, firms below 50% of SUW take over a favorable survival rate toward the seventh year post-IPO (76.30% to 54.86% and 68.70% to 48.70%). Firms with high SUW face long-term challenges in creating sustainable value. Balatbat and Bertinshaw (2008) state that firms with high SUW reflect no clear direction for their future business prospects and offer a slimmer possibility of surviving after the listing. We find that it takes a more extended period (by 25 months) for half of the firms with below 50% of SUW to become non-survivors compared to firms with above 50% of SUW.

Panel B of Table 3 also reports the survival rate of firms by stratifying the time frame of proceeds utilization categories. The remaining four years of observation show that those firms with TFG longer than 24 months (67.12%–57.50%) can survive better than those with TFG lower than 24 months (67.12%–57.50%). Since growth activities require time for firms to have a return on investment in the long run (Amor & Kooli, 2017), firms prioritizing this category can continue being profitable, thus achieving their long-term objective. Furthermore, although a majority of the firms (183 firms) choose to allocate a shorter TFG (0–12 months), 73 firms with TFG longer than 24 months have a longer ST median by 49 months.

Table 3.

Kaplan–Meier Survival Descriptive Statistics: Stratification of IPO Proceeds Categories.

Panels	No. of Firms	Aggregate Survival Rates (%)							ST Median (50%)
Panels	No. of Firms	t − 1	t − 2	t − 3	t − 4	t − 5	t − 6	t − 7	ST Median (50%)
Panel A: Strategic Uses of IPO Proceeds
Growth motives (%)
(0–50)	248	83.06	73.79	71.37	64.11	60.89	58.06	55.24	104
(51–100)	175	80.00	74.86	65.71	61.14	58.29	53.71	50.27	90
Financial obligations (%)
(0–50)	374	81.28	74.06	68.45	62.83	59.63	56.42	53.73	104
(51–100)	49	85.71	75.51	73.47	63.27	61.22	55.10	48.98	82
Working capital (%)
(0–50)	308	81.17	76.30	70.13	64.61	61.69	57.79	54.86	106
(51–100)	115	83.48	68.70	66.09	58.26	54.78	52.17	48.70	81
Panel B: Time Frame of Proceeds Utilization
Growth motives (months)
(0–12)	182	86.26	77.47	73.63	65.93	62.09	58.24	54.40	102
(13–24)	168	75.60	70.24	64.88	57.74	54.76	52.38	49.99	81
(>24)	73	84.93	75.34	67.12	67.12	65.75	60.27	57.50	151
Financial obligations (months)
(0–12)	403	81.64	74.19	68.73	62.53	59.31	55.83	52.84	102
(13–24)	17	82.35	76.47	76.47	70.59	70.59	64.71	58.82	95
(>24)	3	100.00	66.67	66.67	66.67	66.67	66.67	66.67	201
Working capital (months)
(0–12)	293	80.89	74.74	68.60	62.80	59.39	55.97	53.23	101
(13–24)	101	82.18	72.28	71.29	63.37	61.39	58.42	54.46	107
(>24)	29	89.66	75.86	65.52	62.07	58.62	51.72	48.03	83

Notes: This table shows the cumulative survival rates of firms listed from 2000 to 2014 using the Kaplan–Meier survival analysis model for seven years of observation, focusing on the categories of IPO proceeds for the strategic use of IPO proceeds (Panel A) and time frame of proceeds utilization (Panel B).

Next, a different pattern for firms’ survival rates can be observed from the TFF whereby for the first years of listing, none of the firms with TFF longer than 24 months has difficulty surviving, as shown by the 100% survival rate. In the first year post-IPO, 403 firms that opt for a shorter TFF (from 0 to 24 months) exhibit a 20% decrement survival rate. Although there is a substantial drop experienced by the firms with TFF longer than 24 months (33.33%) in the second year, the remaining 66.67% can survive until the end of the observation period (2 firms out of 3 firms). Consequently, firms with TFF longer than 24 months show a higher survival rate in the seventh year of listing (66.67%) than firms with TFF shorter than 24 months (52.84% and 58.82%). Thus, firms meeting financial obligations at a prolonged period survive longer.

Firms with TFW longer than 24 months pose the greatest survival rate in the first two years of listing, at 89.66% in the first year and 75.86% in the second year of listing. At the end of the observation period, the lowest survival rate is 48.03%, represented by firms with longer than 24 months of TFW. Since working capital is commonly used for general corporate purposes (Chauhan, 2019), shorter TFW is preferable to avoid uncertainty on the utilization of IPO proceeds in the working capital category in the long run.

4.3 Determinants of Firms Survival Time (AFT Model)

Table 4 demonstrates the AFT model. Using the Akaike Information Criterion (AIC) test, we apply the AFT model with Weibull distribution⁴ as the baseline survival function. We give the associated significance level (1%, 5%, and 10%), the estimate of the standard coefficient, and the time ratio. The time ratio is the exponentiated coefficient, such that a value greater than (less than) one for each covariate should accelerate (decelerate) the firm’s survival time, according to Espenlaub et al. (2016). The chi-square value of 38.33 and the P value show that the model is statistically significant and well-fitted.

4.3.1 Strategic Use of IPO Proceeds and Firms’ Survival Time

Table 4 reports a 10% significance and negative relationship between SUG and ST, signifying that firms allocating a higher SUG have shorter ST. The result implies that SUG is an efficient signaling technique for ST. It is not surprising as previous insights from Table 3 Panel A show that firms allocating below the average IPO proceeds to growth motives have a more extended survival time median. According to Carlson et al. (2004), firms that prioritize growing their businesses can face negative impacts from the operating leverage that firms need to bear along with their “expansion.” As expansionary business undertakings are expensive, the long-term costs make it difficult to persuade investors of a firm’s sustained development potential (Jeanneret, 2005).

Table 4.

AFT Model Result.

Main Independent Variables	Time Ratio	Coefficient	z-test
SUG (%)	0.9958	–0.0042^*	–1.85
SUF (%)	0.9943	–0.0058^**	–2.28
SUW (%)	0.9971	–0.0029	–1.29
TFG (months)	0.9995	–0.0005	–0.12
TFF (months)	1.0147	0.0146^*	1.57
TFW (months)	1.0019	–0.0019	0.46
Other Independent Variables
INOP (%)	1.002	0.002^**	2.35
OSR (times)	0.9986	–0.0014^**	–2.09
SIZE (Ln)	0.9967	–0.0033	–0.10
SHARES (%)	0.9968	–0.0032	–1.12
HOT (D)	0.7470	–0.2916^***	–4.12
C	11.613	2.4521	3.25
Observation	423
Log-likelihood	–394.33
LR (Prob>chi)²	38.33^***
Time at risk	1682.86
RAMSEY reset	0.81^***

Notes: SU (TF) = IPO proceeds’ strategic use (time frame of proceeds utilization). The alphabet G, F, and W = growth motives, financial obligations, and working capital, correspondingly. INOP = initial performance using the opening price; OSR = firm’s quality measured by the firm’s oversubscription ratio; SIZE = the firm’s risk measured by the size of firm; SHARES = the insiders retention upon listing; HOT = the market sentiment measured using the dummy value of 1 for hot market and 0, otherwise. Significant levels at 1%, 5%, 10% denote as ***, **, *, correspondingly.

While growth motives may initially seem attractive to investors, firms that display a substantial fraction for growth as their strategic use may also expand only in their capital use without generating value (Wyatt, 2014). Consequently, firms’ prospects related to R&D activities are viewed as a negative signal in the future (Ahmad-Zaluki & Badru, 2020) seen as the possibility of high cash flow volatility over the long term. Since the Malaysian market has a relatively weak regulatory structure (Mehmood et al., 2021), potential investors are prone to be speculative and will choose not to invest in such firms. Resultantly, this sends a negative signal regarding the firm’s viability, heightening the agency cost between parties (shareholders and management) while reducing the ST, post-IPO.

Interestingly, we identified a greater significance (5% level) on ST for firms prioritizing SUF than for SUG (10% significant level). Similar to Amor and Kooli (2017), we provide evidence that firms choosing to meet their financial obligations may be perceived as exploitative by the market. These firms choose to issue equity during shares are overvalued to refinance their debt, which causes their future cash flow to stagnate (Autore et al., 2009; Komenkul et al., 2016; Leone et al., 2007). The shareholders may not be in favor of the actions, resulting in an induced conflict of interest and reducing the firms’ chances of survival.

Firms that cite meeting financial obligations as their priority often face challenges surviving post-IPO as their intention to reduce credit risk is not sustainable (Paleari et al., 2008). Although their initial intention is to pay off their debt, opportunistic firms tend to take advantage of increasing their debt levels once they are publicly listed. As the firms’ risk increases, they put less importance on their listing status. This assertion is supported by Busaba et al. (2001), who discovered that firms declaring to repay debt as their strategic use of proceeds have a 14% higher chance of pulling out from the premarket. This causes investors to be concerned about other firms with the same intention to meet their financial obligations. Thus, we prove that a high SUF can negatively signal ST, thereby increasing the firms’ conflict of interest and reducing the firms’ post-IPO survival time.

In addition, we find SUW to have an insignificant but negative influence on ST. Despite the insignificance, the negative relationship between SUW and ST is consistent with our proposition that firms prioritizing IPO proceeds with an unclear direction (e.g., general corporate purposes) will shorten the survival time of firms.

4.3.2 Time Frame of Utilizing IPO Proceeds and Firms’ Survival Time

Table 4 demonstrates that TFF is significant (10%) and has a positive influence on ST. Precisely, firms choosing to meet financial obligations over a longer period of time can extend their post-IPO survival time. Reputable firms with longer maturing debt can achieve superior long-term performance with the optimal level of cash on hand (Lei et al., 2021). This diminishes the long-term impact on firms’ financial risk. According to Jeanneret (2005), firms with greater strategic use of financial obligations in their financial position have superior long-term performance, as the management is disciplined to escalate the firm’s value continuously.

Accordingly, firms with longer financial obligations’ maturity are seen as capable of investing excess capital to generate additional income. Firms that meet their financial obligations quicker may extricate themselves from current financial inflexibility; however, firms that extend the period can benefit from utilizing the excess proceeds, signaling value creation to survive longer post-IPO. Our finding supports the theories of signaling and agency, in which TFF positively signal firms’ post-IPO survival time and decreases agency costs between the shareholders and managers.

However, the TFG and TFW are insignificantly negative and positive to ST. In contrast to value creation, we find firms that place excessive weight on expanding the business create uncertainty among investors from the high cash flow volatility in the long run, deteriorating firms’ survival time in the long run. Moreover, although working capital is often cited as a short-term use for corporate decisions, IPO proceeds allocated for working capital can be utilized to assist the firms in achieving their long-term objectives.

4.3.3 Other Independent Variables and Firms’ Survival Time

Firms’ initial performance (INOP) is the firms’ return on the first-day trading post-IPO. INOP is significant (at 5% level) and positively influences ST. 1.002 time ratio related to INOP specifies that for 1% increase in INOP, ST elongates by 0.2%, suggesting that firms with a positive initial return will elongate ST. This finding is in line with Hensler et al. (1997) and Schultz (1993), whereby firms with high initial performance should increase the firms’ survivability. A high first-day return of listing shows positive sentiment among investors (Gao & Hou, 2019), aiding in providing firms with a satisfactory cash flow stream to pursue long-term large investment opportunities. Firms exhibiting favorable immediate after-market performance are essential for an early indication of long-term progression. Investors will participate in such issuance, providing the firms with enough funding to support the firm’s prospects and elongate ST post-IPO.

The investors’ high demand (i.e., the oversubscription ratio) is used to determine the firm’s quality (OSR). This study demonstrates that OSR has a significant (5%) and negative influence on ST. The 0.9986 time ratio related to OSR demonstrates that ST decreases by 0.14% for every 1% increase in OSR. Despite the fact that firms with a larger oversubscription may encounter beneficial results in the immediate after-market, they may struggle to maintain performance post-IPO (Agarwal et al., 2008). By underpricing their shares, businesses frequently time their initial issuance to ensure a high participation rate. However, investors can only pay temporary attention to the act of underpricing (Wang & Wang, 2021). In the long term, the firms face difficulties in recuperating from the underpricing indirect costs and start to underperform (Kumar & Sahoo, 2021), shortening their post-IPO survival.

Market sentiment (HOT) is the market condition (pessimism or optimism). HOT is strongly significant (1%) and negatively influences ST. The result implies that firms that time their entrance for the period of hot markets shorten their survival time post-IPO. The hot market refers to when a substantial amount of shares are issued on the stock exchange, whereas the cold market is otherwise (Demers & Joos, 2007; Kooli & Meknassi, 2007). Hensler et al. (1997) and Ahmad and Jelic (2014) claim that opportunistic low-quality firms usually time their entrance to the stock market during positive and optimistic market condition periods. The opportunistic firms exercise the bandwagon effect (during optimism) to gain higher returns immediately post-IPO (Baluja & Singh, 2016). Nonetheless, maintaining their listing status is challenging for the firms, especially during a recession, resulting in a shorter survival after the listing (Espenlaub et al., 2012; Hamza & Kooli, 2010). Additionally, SIZE and SHARES are found to be insignificant variables to ST.

4.4 Robustness Check

As a robustness check, we reestimate the AFT model by decomposing growth motives into two individual categories: the strategic use of IPO proceeds for capital expenditure (SUC) and strategic use of IPO proceeds for research and developments (SURD). Table 5 reports that SUC has the same level of significance (at 10% level) as reported in Table 4. However, SURD shows a higher level of significance at 5%, indicating that R&D allocation has a greater influence on affecting the firms’ survival time. Similar to Ahmad-Zaluki and Badru (2020) finding, although high-growth firms promise great returns, this often means that the firms’ revenues are based upon riskier business activities, such as R&D. Therefore, greater R&D expenditures are not a guarantee of future success. Apart from the firm’s future growth, growth requires time to be achieved, signaling high cash flow volatility. Thus, a higher SUG may also increase the conflict of interest between the firms’ management and shareholders, leading to shorter ST. The findings are qualitatively unaffected for the time frame of the proceeds utilization category which TFC and TFRD remain insignificant.

Table 5.

AFT Model Result (Reestimation).

Main Independent Variables	Time Ratio	Coefficient	z-test
SUC (%)	0.9904	–0.0096^*	–1.49
SURD (%)	0.9655	–0.0351^**	–2.16
SUF (%)	0.9841	–0.0161^**	–2.21
SUW (%)	0.9927	–0.0073	–1.12
TFC (months)	0.9938	–0.0062	–0.53
TFRD (months)	1.0217	0.0214	1.42
TFF (months)	1.0504	0.0491^*	1.71
TFW (months)	1.0025	0.0025	0.18
Other Independent Variables
INOP (%)	1.0072	0.0071^***	2.65
OSR (times)	0.9852	–0.0149	–0.15
SIZE (Ln)	0.9945	–0.0055^***	–2.62
SHARES (%)	0.9903	–0.0097	–1.09
HOT (D)	0.3966	–0.9249^***	–4.10
C	1913.7	7.5568	3.29
Observation	423
Log-likelihood	–680.07
LR(Prob>chi)²	41.96^***
Time at risk	41,765
RAMSEY reset	0.87^***

To explore the robustness of our results with other studies (Ahmad & Jelic, 2014; Carpentier & Suret, 2011; Demers & Joos, 2007; Espenlaub et al., 2012; Jain & Kini, 2008), we apply the Cox Proportional Hazard (CPH) model. Unlike the AFT model, which is a parametric survival method, CPH is a semiparametric method that demonstrates the predictive power of independent variables on the probability of firms’ failure by measuring the hazard rate (assumed to be constant over time) without holding any assumptions on the underlying distribution of the survival data (Powell, 1994). A value of above (below) one hazard ratio for any determinants should increase (decrease) the firms’ failure rate (Ahmad et al., 2021). Accordingly, a positive coefficient implies a hazard ratio of above one, indicating that a decrease in the independent variable increases the failure rates. Table 6 exhibits that the results remain robust. All else remains equal, except for the significance of SUG, SUF, and INOP from 10% to 5% level and 5% to 1% level, respectively.

Table 6.

CPH Model.

Main Independent Variables	Coefficient	z-test	Hazard Ratio
SUG (%)	0.0093^**	1.92	1.0090
SUF (%)	0.0130^***	2.41	1.0131
SUW (%)	0.0062	1.38	1.0063
TFG (months)	0.0015	0.19	1.0015
TFF (months)	–0.0337^*	–1.72	0.9669
TFW (months)	–0.0036	–0.41	0.9964
Other Independent Variables
INOP (%)	–0.0047^***	–2.51	0.9955
OSR (times)	0.0163	0.24	1.0163
SIZE (Ln)	0.0034^**	2.35	1.0034
SHARES (%)	0.0065	1.07	1.0065
HOT (D)	0.6170^***	4.20	1.8533
Observation	423
Log-likelihood	–1,256.14
LR(Prob>chi)²	39.46^***
Time at risk	41,765
RAMSEY reset	0.80^***

5. Conclusion

We discover that the information on the strategic use and time frame of IPO proceeds has explanatory power to firms’ survival time. Similar studies on developed markets such as the United States (Amor & Kooli, 2017) and Australia (Wyatt, 2014) have primarily focused on the strategic use of IPO proceeds value as a tool for transmitting information on firms’ post-IPO performance and survival, whereas our study includes the added explanatory variable of the time frame of IPO proceeds’ utilization in an emerging market setting. The added element of revealing more timely information, such as the timeline of fully utilizing the raised proceeds can aid in overcoming the obstacle of asymmetric of information.

We conclude that the strategic use and time frame of IPO proceeds utilization can act as signaling tools before IPO, containing valuable information for investors to protect their interests and help predict firms’ survival profiles. Firms are discouraged from allocating IPO funds for operations with significant cash flow unpredictability in the future and meeting financial obligations below 50% while ensuring that meeting them is not made quickly (at least more than 24 months). To improve information transparency, it is suggested that the SCM should highlight a similar weightage of information precision (due to the vague specification of working capital allocation⁵) for each category of the allocation of IPO proceeds to promote higher protection toward investors’ interests.

Our study provides empirical evidence to support the regulations for reducing asymmetric information between corporate managers and investors, as revealing higher IPO proceeds’ specifications (i.e., strategic use and time frame for each category) promotes transparency and efficient emerging capital market. We highlight that the scope of this study can be generalized to other markets, that is, emerging markets in the region of Asia-Pacific, as the SCM enforces comparable guidelines for listed firms, such as the Indonesia Stock Exchange and the Thailand Stock Exchange. However, we encourage future research statistically scrutinize the information on IPO proceeds on firms’ survival in their markets.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Notes

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