http://ijfr.sciedupress.com International Journal of Financial Research Vol. 12, No. 1; 2021 Published by Sciedu Press 40 ISSN 1923-4023 E-ISSN 1923-4031 The Influence of Growth Opportunities on IPO Initial Aftermarket Performance Norliza Che-Yahya 1 & Siti Suhaila Abdul-Rahman 1 1 Faculty of Business and Management, Puncak Alam Campus, Universiti Teknologi MARA, Selangor, Malaysia Correspondence: Norliza Che-Yahya, Faculty of Business and Management, Puncak Alam Campus, Universiti Teknologi MARA, 42300 Bandar Puncak Alam, Selangor, Malaysia. Tel: 60-3258-7077. Received: July 28, 2020 Accepted: September 29, 2020 Online Published: December 24, 2020 doi:10.5430/ijfr.v12n1p40 URL: https://doi.org/10.5430/ijfr.v12n1p40 Abstract This study examined the influence of growth opportunities of firms on the immediate aftermarket performance of IPOs. The growth opportunities were defined as the amount of proceeds received during IPOs to activities that support the growth of a firm, such as assets acquisition, and research and development (R&D). Acknowledging that not much information about a firm is possibly received by investors prior to its listing in a stock exchange, investors will rely mostly on the information supplied in the “Prospectus” as a reliable channel of their participation evaluation in the IPO firm. One crucial piece of information is on the allocation amount of IPO proceeds as it should signal the directions of a firm in the aftermarket. This study proposes that an IPO firm would have a larger potential to grow if it allocates a bigger amount of proceeds to growth activities, which will encourage higher demand on and subscription of shares of the IPO firm. Eventually, the higher demand would lead to a higher share price of the firm and a higher return for investors in the aftermarket. Leveraging this proposition, a total sample of 436 IPOs listed on Bursa Malaysia from 2000 to 2017 were tested using the multiple regression analysis. This study reveals that the amount of proceeds allocated to growth activities are positively and significantly related to the return of IPOs in the initial aftermarket. Keywords: growth opportunities, initial public offerings, initial return, aftermarket, use of proceeds 1. Introduction One of the main goals of a firm is to maximize profits for continuous growth. This goal can be materialized only when the firm is fully supported by a desirable amount of capital. One way for a firm, particularly a privately listed firm, to acquire enough amount of capital is by going public. Mohd-Rashid, Abdul-Rahim, and Yong (2014) agree that a firm will have access to the capital market and an opportunity to increase its value through the issuance and selling of shares to public for the first time. The decision of a firm to go public for the first time is signified as the decision to issue initial public offerings (IPOs). IPOs are a popular decision of firms to obtain funds as it provides a firm an access to numerous investors (both institutional and retail investors). The investors will buy shares of a firm if they believe that the shares are worth enough for their investment. Thus, the intention of a firm to acquire funds will be fulfilled. Meanwhile, IPOs are seen as a suitable way to evade interest expenses, particularly if a firm opts for loans from banks. Hence, the issuance of IPOs is suggested as one of the important steps and strategic financing decisions by a firm (Luo, Qian, & Ren, 2015). Although IPOs are seen as an important step in a firm‟s life cycle, the listing of a firm in a stock exchange and the issuance of shares to public for the first time are not always pleasing. Apart from the major changes in the ownership structure, corporate governance, and financial reporting practices, which may not be welcomed by some of the existing shareholders, an IPO firm will also be threatened by the possibilities of its newly issued shares not to be entirely demanded (Aharony, Lee, & Wong, 2000; Burton, Helliar, & Power, 2004; Hung, Wong, & Zhang, 2012; Lee, 2001; Teoh, Welch, & Wong, 1998). Implicitly, the firm will not only be denied the chance to acquire the needed amount of funds, but will also experience a lower initial market price as well as negative initial aftermarket performance if its shares are under demanded. It is crucial for IPO firms to produce a good initial aftermarket performance as it will usually give an early indication on their potential sustainability and growth in the long term. As posited by Espenlaub, Khurshed, and Mohamed (2012), the longer period a firm could sustain its position in the IPO aftermarket, the better the chance that the firm will have to obtain continuous funds from investors to capitalize