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This study investigates the influence of "offer for sale" by existing shareholders on investors’ reaction in the IPO immediate aftermarket. The "offer for sale" is measured by the proportion of shares offered to public from the sale of the existing shareholdings prior to IPO against the total number of shares offered during IPO. The "offer for sale" activity suggests that proceed from the shares sold at an IPO would go into the pocket of the existing shareholders. That is, the proceed does not actually meet the primary goals of the IPO to raise funds for business expansion. IPO firms that go public mainly through "offer for sale" activity are expected to receive less demand during IPO from potential investors as the investors are less optimistic in firms which their shares are offered mostly through "offer for sale" activity relative to firms which their shares are newly issued. Thus, firms which their shares are offered through "offer for sale" activity are predicted to produce poor initial aftermarket return and trading. Using a final sample of 419 Malaysian IPOs issued from January 2000 to December 2015, regression results of this study reveal that firms which their shares are offered highly through "offer for sale" report poor and lower initial aftermarket return and trading volume. The results support the proposition of this study that investors are less optimistic in firms which their shares are offered mostly through "offer for sale" activity.

The influence of “offer for sale” by existing shareholders on investors’ reaction in the IPO immediate aftermarket