2018 | Volume 14 | Issue 1 | 152-167
Article title

Underpricing and long-term market performance of initial public offerings in Indonesia: A quantile regression approach

Title variants
Languages of publication
This study aims to identify the relationship between underpricing and long-term market performance of IPOs in the Indonesian Stock Exchange (IDX), as well as determinants of IPOs' market performance. We based our paper on the idea that it is more meaningful and relevant to investigate underpricing and long-term market performance determinants at different distribution points. OLS and quantile regression analysis isapplied to 105 samples of IPOs during 2009-2013. The results of OLS and quantile regressions indicate that assets value, age, proceeds, and underwriters’ reputation are determinants of long-term market performance; while assets, age and proceeds also become underpricing determinants. Among these factors, proceeds become the most important determinant of underpricing and long-term market performance.
Physical description
  • Faculty of Economics and Business, Universitas Airlangga, Indonesia
  • Faculty of Economics and Business, Brawijaya University, Indonesia
  • Faculty of Economics and Business, Brawijaya University, Indonesia
  • Adriansyah, A., & Messinis, G. (2016) Intended use of IPO proceeds and firm performance: A quantile regression approach. Pacific-Basin Finance Journal, 36, 14-30.
  • Agarwal, R. Leal, R. & Hernandez, L. (1993) The aftermarket performance of initial public offerings in Latin America. Financial Management, 22, 42-53.
  • Ahmad-Zaluki, N.A. Campbell, A. Goodacre, A. (2007). The long run share price performance of Malaysian Initial Public Offerings (IPOs). Journal of Business Finance & Accounting, 34(1-2), 78-110.
  • Allen, F., & Faulhaber, G.R. (1989). Signaling by underpricing in the IPO market. Journal of Financial Economics, 23, 303-323.
  • Amor, B. S. Kooli, M. (2016) Intended use of proceeds and post-IPO performance. The Quarterly Review of Economics and Finance, 65, 168-181.
  • Baron, D.P. (1982). A model of the demand for investment banking advising and distribution services for new issues. The Journal of Finance, 37(4), 955-976.
  • Butler, A.W. Keefe, M.O., & Kieschnick, R. (2014). Robust determinants of IPO underpricing and their implications for IPO research. Journal of Corporate Finance, 27, 367-383
  • Cai, X. Liu, G.S., & Mase, B. (2008). The long-run performance of initial public offerings and its determinants: the case of China. Review of Quantitative Finance and Accounting, 30, 419-432.
  • Carter, R. B., & Manaster, S. (1990). Initial public offerings and underwriter reputation. The Journal of Finance, 45(4), 1045-1067.
  • Carter, R. B. Dark, F. H. Sapp, T. R.A. (2010). Underwriter reputation and IPO issuer alignment 1981-2005. The Quarterly Review of Economics and Finance, 50, 443-455.
  • Durukan, B.M. (2002). The relationship between IPO returns and factors influencing IPO performance: case of Istanbul Stock Exchange. Managerial Finance, 28(2), 18-38.
  • Emasari, L. Tamara, D. (2010). Investigation towards the long-run performance of initial public offerings: evidence from Indonesian capital market. Journal of Applied Finance and Accounting, 2(2), 100-125.
  • Espenlaub, S. Gregori, A.G., & Tonks, I. (2000). Re-assesing the long term underperformance of UK initial public offerings. European Financial Management, 6(3), 319-342.
  • Fama, E.F. (1998). Market effciency, long-term returns, and behavioral finance. Journal of Financial Economics, 49, 283-306.
  • French, K. R. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8, 55-70.
  • Goergen, M. Khurshed, A., & Mudambi, R. (2007). The long run performance of UK IPOs: can it be predicted? Managerial Finance, 33(6), 401-419.
  • Griffith, S. (2004). Spinning and underpricing: A legal and economic analysis of the preferential allocation of shares in initial public offerings. Brooklyn Law Review, 69, 583-649.
  • Guo, R. Lev, B., & Shi, C. (2006). Explaining the short- and long-term IPO anomalies in the US by R&D. Journal of Business Finance and Accounting, 33(3-4), 550-579.
  • Habib, M., & Ljungqvist, A. (2001). Underpricing and entrepreneurial wealth losses in IPOs: theory and evidence. Review of Financial Studies, 14, 433-458.
  • Ibbotson, R.G. (1975). Price performance of common stock new issue. Journal of Financial Economics, 2, 235 - 272.
  • Jakobsen, B., & Sorensen O. (2001). Decomposing and testing long term returns: an application on Danish IPOs. European Financial Management, 7(3), 393-417.
  • Jenkinson, T. J. (1990). Initial public offerings in the United Kingdom, the United States, and Japan. Journal of the Japanese and International Economies, 4(4), 428-449.
  • Jones, T.L., & Ligon, J.A. (2009). The day of the week effect in IPO initial returns. The Quarterly Review of Economics and Finance, 49, 110-127.
  • Kenourgios, D. F. Papathanasiou, S. Melas, E. R. (2007). Initial performance of Greek IPOs, underwriters reputation and oversubscription. Managerial Financei, 33(5), 332-343.
  • Kirkulak, B., & Davis, C. (2005). Underwriter reputation and underpricing: Evidence from the Japanese IPO market. Pacific-Basin Finance Journal, 13, 451-470.
  • Koenker, R., & Bassett Jr. G. (1978). Regression quantiles, Econometrica, 46, 33-50.
  • Koenker, R., & Hallock, K.F. (2001). Quantile regression. Journal of Economic Perspectives, 15(4), 143-156.
  • Koenker, R. (2005). Quantile regression, Cambridge University Press, New York.
  • Lee, P. S. Taylor, & Walter, T. (1996). Australian IPO underpricing in the short and long-run. Journal of Banking and Finance, 20, 1189-1210.
  • Levis. M. (1993). The long-run performance of initial public offerings: The UK Experience 1980-1988. Financial Management, 22(1), 28-41.
  • Loughran, T. Ritter, J., & Rydqvist, K. (1994). Initial public offerings: international insight. Pacific-Basin Finance Journal, 2, 165-199
  • Loughran, T., & Ritter, J. (2004). Why has IPO underpricing changed over time?, Financial Managementi, Autumn, 5 - 37.
  • Mitchell, M., & Stafford, E. (2000). Managerial decision and long-term stock price performance. Journal of Business, 73, 287-329.
  • Meidiaswati, H. (2017). Asymmetric information at first seasoned equity offering in the Indonesian capital market, Dissertation, Postgraduate Program, The Faculty of Economics and Business, Universitas Airlangga.
  • Murugesu, J., & Santhapparaj, A.S. (2010). Impact of risk disclosure in the prospectus on valuation and initial returns of initial public offerings in Malaysia. The IUP Journal of Applied Finance, 16(6), 30-53.
  • Ozdemir, O. Upneja, A. (2016). The role of internationalization on the IPO performance of service firms: examination of initial returns, long-run returns, and survivability. International Business Review, 25, 997-1009.
  • Page Reyneke, M. J. (1997). The timing and subsequent performance of initial public offerings (IPOs) on the Johannesburg Stock Exchange. Journal of Business Finance and Accounting, 24(9-10), 1401-1420.
  • Pande, A., & Vaidyanathan, R. (2009). Determinants of IPO Underpricing in the Nation Stock Exchange of India'. Journal of Applied Finance, 15(1), 27-35.
  • Ritter, J. R. (1984). The "hot issue" market of 1980. Journal of Business, 57, 215-240.
  • Ritter, J. R. (1991). The long run performance of initial public offerings. Journal of Finance, 46, 3-27.
  • Ritter, J. R. (1998). Initial public offerings. Contemporary Finance Digest, 2(1), 5-30.
  • Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15, 187-212.
  • Tian, L. (2011). Regulatory underpricing: determinants of Chinese extreme IPO returns. Journal of Empirical Finance, 18, 78-90.
  • Welch, I. (1989). Seasoned offerings, imitation costs, and the underpricing of initial public offerings. Journal of Finance, 44, 421-449.
Document Type
Publication order reference
YADDA identifier
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.