Factors Affecting Underprricing Levels In Companies That Conduct Initial Public Offering On The Indonesia Stock Exchange

Feb 28, 2025 by ADMIN 121 views

Factors Affecting Underpricing Levels in Companies that Conduct Initial Public Offering on the Indonesia Stock Exchange

Introduction

The Initial Public Offering (IPO) is a significant event for companies, marking their transition from private to public ownership. However, the IPO process can be complex, and one of the critical aspects is the underpricing of shares. Underpricing occurs when the IPO price is lower than the expected market price, resulting in a potential loss of revenue for the company. This study aims to analyze the factors affecting underpricing levels in companies that conduct IPO on the Indonesia Stock Exchange (IDX).

Literature Review

Previous studies have identified several factors that can influence underpricing levels, including company size, financial leverage, return on equity (ROE), and current ratio. However, the relationship between these variables and underpricing levels is not yet fully understood. This study aims to contribute to the existing literature by examining the effect of these variables on underpricing levels in companies listed on the IDX.

Methodology

This study used a panel data approach with the Common Effect Model (The Pooled Least Square) to analyze the effect of company size, financial leverage, ROE, and current ratio on underpricing levels. The data used in this study consisted of annual financial statement data from 118 companies listed on the IDX from 2011 to 2015. After selecting the samples based on certain criteria, 62 samples were obtained.

Results

The simultaneous test results showed that company size, financial leverage, ROE, and current ratio significantly affect underpricing levels. However, when a partial testing (T-test) was carried out, only company size showed a negative and significant effect on underpricing levels. Meanwhile, financial leverage, ROE, and current ratio had a negative influence but were not significant on underpricing levels.

Further Analysis

Firm Size

The finding that company size has a significant effect on underpricing levels suggests that larger companies tend to have lower underpricing levels. This may be due to several factors, including:

Risk: Large companies usually have lower risk than small companies, making investors more confident to invest in them.
Transparency: Large companies tend to be more transparent in the disclosure of financial information, increasing investor confidence and reducing excessive underpricing possibilities.
Capital Access: Large companies have easier access to capital, reducing the need for high underpricing to attract investors.

Current Ratio, Financial Leverage, and ROE

The results showed that these three variables have no significant effect on underpricing levels. This may be due to several factors, including:

Other factors: There may be other factors that are more dominant in determining underpricing levels.
Measurement errors: Financial data used in the study may contain measurement errors, making the test results inaccurate.

Recommendation

This study provides several recommendations for investors and IPO companies on the IDX:

Investor: Investors must pay attention to the size of the company when choosing IPO shares. Large companies tend to have lower risks and lower underpricing levels.
IPO Company: IPO companies need to pay attention to transparency and disclosure of financial information to increase investor confidence and reduce the possibility of excessive underpricing.

Conclusion

This study shows that company size has a significant influence on underpricing levels in companies listed on the IDX. This study provides useful information for investors and IPO companies in understanding the factors that affect underpricing levels.

Limitation

It is essential to note that this research only looks at the effect of several variables on underpricing levels. There are many other factors that can affect underpricing levels, such as market conditions, economic conditions, and IPO strategies. Further research by considering other factors can provide a more comprehensive understanding of underpricing at the IPO company on the IDX.

Future Research Directions

Future research can build on this study by examining the effect of other variables on underpricing levels, such as market conditions, economic conditions, and IPO strategies. Additionally, researchers can use more advanced statistical techniques, such as machine learning algorithms, to analyze the complex relationships between variables and underpricing levels.

References

[List of references cited in the study]

Appendices

[Appendices containing additional information, such as data sources, sample selection criteria, and statistical analysis results]
Frequently Asked Questions (FAQs) about Factors Affecting Underpricing Levels in Companies that Conduct Initial Public Offering on the Indonesia Stock Exchange

Q: What is underpricing in the context of an Initial Public Offering (IPO)?

A: Underpricing occurs when the IPO price is lower than the expected market price, resulting in a potential loss of revenue for the company.

Q: What are the factors that affect underpricing levels in companies listed on the Indonesia Stock Exchange (IDX)?

A: The study found that company size, financial leverage, return on equity (ROE), and current ratio are significant factors that affect underpricing levels.

Q: What is the relationship between company size and underpricing levels?

A: The study found that larger companies tend to have lower underpricing levels. This may be due to several factors, including lower risk, higher transparency, and easier access to capital.

Q: What is the significance of financial leverage in determining underpricing levels?

A: The study found that financial leverage has a negative influence on underpricing levels, but it is not significant. This suggests that companies with high financial leverage may not necessarily have lower underpricing levels.

Q: What is the role of return on equity (ROE) in determining underpricing levels?

A: The study found that ROE has a negative influence on underpricing levels, but it is not significant. This suggests that companies with high ROE may not necessarily have lower underpricing levels.

Q: What is the significance of current ratio in determining underpricing levels?

A: The study found that current ratio has a negative influence on underpricing levels, but it is not significant. This suggests that companies with high current ratio may not necessarily have lower underpricing levels.

Q: What are the implications of this study for investors and IPO companies?

A: The study provides several recommendations for investors and IPO companies, including paying attention to company size, transparency, and disclosure of financial information to increase investor confidence and reduce the possibility of excessive underpricing.

Q: What are the limitations of this study?

A: The study only looks at the effect of several variables on underpricing levels and does not consider other factors that may affect underpricing levels, such as market conditions, economic conditions, and IPO strategies.

Q: What are the future research directions based on this study?

A: Future research can build on this study by examining the effect of other variables on underpricing levels, using more advanced statistical techniques, and considering other factors that may affect underpricing levels.

Q: What are the practical implications of this study for IPO companies and investors?

A: The study provides useful information for IPO companies and investors in understanding the factors that affect underpricing levels and making informed decisions.

Q: What are the potential applications of this study in the field of finance?

A: The study can be applied in the field of finance to help IPO companies and investors make informed decisions about underpricing levels and to develop strategies for reducing underpricing levels.

Q: What are the potential benefits of this study for the Indonesian capital market?

A: The study can contribute to the development of the Indonesian capital market by providing insights into the factors that affect underpricing levels and helping to improve the efficiency of the IPO process.

Q: What are the potential limitations of this study for the Indonesian capital market?

A: The study may not be generalizable to other markets or contexts, and the findings may not be applicable to all IPO companies or investors.