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This study investigates the impact of historical financial metrics on the valuation of initial public offerings (IPOs) in Malaysia. Using a sample of 54 mid-cap IPOs listed on Bursa Malaysia from 2010 to 2023, multiple linear regression analysis was conducted to examine the relationship of EBITDA, revenue growth, book value of equity per share and gross profit margin with respect to two IPO valuation benchmarks, namely price-to-earnings ratio (P/E) and price-to-book ratio (P/B). Controlled variables in the form of leverage and market conditions were also inserted in the model. Empirical evidence showed gross profit margin and market conditions to have a significant positive relationship with P/E valuation while the P/B model showed book value of equity per share and gross profit margin to be significant, displaying a negative and positive effect respectively. Both models exhibited a modest predictive power ranging between 30% to 40%, indicating the influence of unaccounted variables. Sectoral analysis revealed that industrial IPOs tend to focus on book value for valuations while non-industrial IPOs emphasize profitability. Testing the effects of the Covid-19 pandemic showed a shift of investor sentiment from accepting levered companies as a sign of growth before the pandemic towards a more risk-averse strategy focusing on profitability and revenue generation after the pandemic. Key restrictions in this study include the size of the sample and the concentration on only a single Asian market, warranting further research on a global scale. The outcomes of this research serve as a platform for future studies exploring the importance of historical financial information in explaining the valuations of IPOs, contributing to reduced information asymmetries and enabling potential investors to make more informed investment decisions.
