The Effects of R&D Intensity and Capital Structure on the Growth and Performance of Post-IPO Firms in Malaysia: A Dynamic Panel Data Approach

Abstract

Introduction: Initial Public Offering (IPO) could provide substantial growth opportunities to the firm. This is because capital raised through IPO can enhance the firm’s Research and Development (R&D) capabilities, hence their growth and performance. However, despite the increasing importance of the IPO, not many studies were conducted on the effects of IPO firm’s R&D investment and capital structure on the firms’ growth and performance. In fact, there is inconclusive evidence about the impact of IPO on firm’s growth and performance. Some studies found firm grew dramatically after being listed as a public company, while some stated that firms deteriorate in the years following the IPO.

Objectives: The objective of this paper is to examine the effects of post-IPO firm’s capital structure and R&D on the firms’ growth and performance.

Methods: The econometrics study used annual panel data gathered from 295 Malaysian IPO firms over the period of fourteen (14) years. Data were averaged by non-overlapping three-year periods. In the estimation, two indicators were used to measure firm’s growth: asset growth and sales growth, and three were used for firm performance: one measuring accounting performance, one measuring stock market performance, and one measuring business performance. System Generalised Method of Moments (GMM) was used in the estimation of growth and performance equations.

Results: The estimation results showed there is a significant positive relationship between R&D and the total assets growth of Malaysian IPO firms. However, the results of total sales growth model failed to confirm the existence of such effects. This study found that the debt to asset ratio has a significant positive impact on the stock market value of IPO firms. Meanwhile, the debt-to-equity ratio affects the stock market value negatively. This paper also found financial leverage has a significant negative impact on profitability but not on the productivity of IPO firms. The growth of IPO firms has a positive impact on profitability. However, the growth affects their productivity and stock market value negatively.

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