Influence of institutional investors’ participation on flipping activity of Malaysian IPOs Norliza Che-Yahya a, *, Ruzita Abdul-Rahim b , Othman Yong c a Faculty of Business Management, Universiti Teknologi Mara (UiTM), 40450 Shah Alam, Selangor, Malaysia b Faculty of Economics and Management, National University of Malaysia, 43600 UKM Bangi, Selangor, Malaysia c UKM—Graduate School of Business, National University of Malaysia, 43600 UKM Bangi, Selangor, Malaysia Economic Systems 38 (2014) 470–486 A R T I C L E I N F O Article history: Received 2 January 2014 Received in revised form 9 March 2014 Accepted 19 March 2014 Available online 22 August 2014 JEL classification: G11, G12 Keywords: Flipping activity Institutional investors’ participation Malaysian IPO market A B S T R A C T This paper examines the influence of institutional investors’ participation on flipping activity of Malaysian IPOs. Measured as the percentage of trading volume on the first trading day against the total number of shares offered, flipping is the quickest way to gain huge profits from IPOs. However, excessive flipping activity has significant potential to create artificial downward pressure on the price of IPOs. One way to reduce such an adverse effect is by strategically allocating a larger proportion of new shares to institutional investors. This is because institutional investors are normally assumed to be long-term investors. As such, they are less likely to flip their allocated IPOs in the immediate aftermarket. The long-term investment argument is consistent with institutional investors’ preference for a steady income stream in the form of dividends. Drawing upon this argument, the greater participation of institutional investors during an IPO is expected to be an effective strategy to control aggressive flipping activity. The Malaysian IPO market offers an excellent opportunity to examine this hypothesis because data regarding the allocation of new shares to institutional investors can be traced conveniently through a type of IPO referred to as ‘‘private placement’’. Based upon an examination of 248 IPOs listed on Bursa Malaysia between January 2000 and December 2012, this study finds a negative relationship between institutional * Corresponding author. Tel.: +60 355132677. E-mail addresses: norlizacheyahya@yahoo.com (N. Che-Yahya), ruzitaar@ukm.my (R. Abdul-Rahim), othmanyo@ukm.my (O. Yong). Contents lists available at ScienceDirect Economic Systems journal homepage: www.elsevier.com/locate/ecosys http://dx.doi.org/10.1016/j.ecosys.2014.03.002 0939-3625/ß 2014 Elsevier B.V. All rights reserved.