Linking Non-Financial Performance Determinants with IPO Underpricing: Evidence from Indonesia

Abstract

This study aims to investigate the determinants that may influence the underpricing in Initial Public Offerings (IPO), a phenomenon found in stock exchange markets globally. Underpricing occurs when the intrinsic value is higher than the offer price set by the issuing firm. As a result, the share’s price skyrockets upon its market debut, offering an instant profit to investors, but potential damage to the company itself. Method: The focus of this study is the Indonesian stock market, which is seen as one of the leading growth economies among emerging markets and other developing economies, with accelerated GDP and having topped the list of Southeast Asian (ASEAN) countries regarding the number of IPOs. This research utilises multiple linear regression models and samples of firms that engaged in IPO in the Indonesia Stock Exchange (IDX) between 2018 and 2022. Findings: Using prospectus’ non-financial performance determinants, this study finds that underwriter reputation, public ownership, and firm size have a positive influence on underpricing; additionally, offering size and firm age have a negative and statistically significant influence on underpricing. Furthermore, this study adds to the existing research by emphasising how various determinants are linked to IPO underpricing in Indonesia. In addition, this study demonstrates that prospectuses provide relevant information to minimise information asymmetry and ex-ante uncertainty between firms and shareholders. Conclusion: Considering the present shortage of studies on the determinants of IPOs underpricing as a starting point, this empirical research can be valuable since it could enhance the existing research by providing latest data for comparisons across nations.