A Background to Firms in the ACE Market

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  1. Introduction

Rights issue is a universal and widespread approach used by firms in various countries to generate new capital. From the past evidence, for example in London, there was £1 to £1.5 billion has been raised through rights issues each year in London Stock Exchange (Marsh, 1979). Recently, the rights issue has also been used as a tool for a company to boost new capital. For instance, one of the Finnish Miner Taivivaara’s biggest companies was using rights issue to raise 260 million Euros capital in the largest city of Finland, Helsinki to keep its nickel mine running (Reuters, 2013). Similarly in Malaysia, statistically about RM14.9 billion equity capitals was raised via announcing rights issues in Bursa Malaysia (Shamsher and Annuar, 1993). Besides that, Malaysian Airline System Bhd (MAS) has also announced rights issue to raise new capital and finally brought a higher capital of RM 3.07 billion to the company (The star, 2013). As a result, rights issue is one of the important considerations for a company to be competitive in the investment markets. Furthermore, the firms in ACE market are normally small and medium-sized enterprises. Thus they require an avenue to raise new capital so that they can survive and continue to grow. Instead of raising new capital through loans from financial institutions or commercial banks that will boost their liability, issuing rights issues announcement has become their ultimate choices. For instance, EA Holdings Bhd (EAH), which is one of the firms in ACE market, was proposed to issue rights to raise a new capital total RM63.6 million with RM30 million to finance suitable and viable profitable investment, RM28.3 million for working capital and RM4.5million for reducing liability (Free Malaysia Today, 2014). Therefore, there is a need to investigate stock price reaction on rights issues in ACE market due to concerning of firms in generating new capital.

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  1. Definition of ACE Market

ACE Market is a secondary stock market in Kuala Lumpur Stock Exchange (KLSE) which is also known as Bursa Malaysia. ‘ACE’ is standing for ‘Access, Certainty and Efficiency’, a revamp of the older Mesdaq Market that was launched in year 1997. This evolution of secondary stock market approach was made in August 2009. Although ACE Market is define as a new version of Mesdaq Market, ACE market is different from Mesdaq Market as it involves sponsor-driven and open to companies of all sectors and item emphasises disclosure and efficiency compared with Mesdaq (The Star, 2009). According to Bursa Malaysia, mode of listing for companies in ACE market got no minimum operating track record or profit requirement. However, companies with smaller scale of capital that is less than RM6 million profits after tax for the most recent three to five full financial years are not qualified to be listed in the main market and so will be listed in secondary market.

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