ESG practices disclosure and initial performance of Malaysian IPOS

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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.

Acknowledgments
The authors would like to acknowledge that this article is part of a research project funded by Universiti Teknologi MARA (UiTM) for the MyRA Grant Scheme, file no: 600-RMC 5/3/GPM (118/2022).

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    • Table 1. Summary of variable measurements
    • Table 2. Descriptive statistics analysis
    • Table 3. VIF analysis
    • Table 4. Ramsey RESET
    • Table 5. ESG impact on initial performance
    • Table 6. Individual impact of ESG on initial performance
    • Conceptualization
      Siti Sarah Alyasa-Gan, Norliza Che-Yahya
    • Formal Analysis
      Siti Sarah Alyasa-Gan, Nur Zahidah Bahrudin
    • Methodology
      Siti Sarah Alyasa-Gan, Norliza Che-Yahya
    • Software
      Siti Sarah Alyasa-Gan
    • Writing – original draft
      Siti Sarah Alyasa-Gan
    • Funding acquisition
      Norliza Che-Yahya
    • Supervision
      Norliza Che-Yahya, Nur Zahidah Bahrudin
    • Writing – review & editing
      Norliza Che-Yahya, Nur Zahidah Bahrudin
    • Validation
      Nur Zahidah Bahrudin
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Investment Management and Financial Innovations