The Importance of IPO in the Capital Market

Oct 13, 2025 by recoveryshake.com 110 views

The Effect of Underwriter Reputation, Auditor's Reputation, Profitability, Financial Leverage and Earning Per Share (EPS) on the Underpricing Level at the Initial Public Offering (IPO) on the Indonesia Stock Exchange (BEI) in 2010-2015

Introduction

The Initial Public Offering (IPO) is a crucial step for companies to raise funds from the public by selling their shares. However, often these stocks are traded at a lower price than the price offered in the IPO, known as the "underpricing" phenomenon. This study aims to analyze the factors that affect the underpricing level, especially focusing on the reputation of underwriters, auditor reputation, profitability, financial leverage, and earnings per share (EPS) in companies that do IPOs on the Indonesia Stock Exchange between 2010 and 2015.

The Importance of IPO in the Capital Market

In the context of the capital market, the IPO is an important step for companies to get funds from the public by selling their shares. The IPO process allows companies to raise capital from a large number of investors, which can be used to finance business expansion, pay off debts, or invest in new projects. However, the IPO process can also be complex and involves various risks, including the risk of underpricing.

The Underpricing Phenomenon

The underpricing phenomenon occurs when the stock price of a company that has gone public is traded at a lower price than the price offered in the IPO. This can be due to various factors, including the lack of information about the company, the high demand for the stock, or the low supply of the stock. The underpricing phenomenon can have a significant impact on the company's stock price and can also affect the company's ability to raise capital in the future.

Research Methodology

In this study, the population taken was all companies that carried out IPOs on the Indonesia Stock Exchange. The methods used include descriptive statistical analysis, classical assumption tests, regression tests, and hypothesis tests. The independent variables studied include underwriter reputation, auditor reputation, profitability, financial leverage, and EPS, while the dependent variable is the underpricing level. Of the total population of 139 companies, 96 samples were obtained through purposive sampling techniques. The data used is secondary data taken from financial statements and other related information.

Research Result

The results of the study show that the reputation variable of underwriter and profitability (return on equity/ROE) has a significant negative effect on the underpricing level. This indicates that the higher the company's underwriter and profitability reputation, the lower the underpricing level that occurs. Meanwhile, the Financial Leverage Variable (Debt to Equity Ratio/DER) shows a significant positive effect on underpricing, meaning companies with higher debt levels tend to experience a higher underpricing level.

However, the auditor's reputation and EPS did not show a significant effect on the underpricing level. This may indicate that other factors that are more dominant in influencing stock prices during the IPO than the auditor's reputation and EPS performance.

Additional Analysis

The underpricing phenomenon is very relevant in the Indonesian stock market, which is often influenced by market sentiments and asymmetrical information between investors and companies. Underwriter reputation plays an important role in giving trust to investors, which in turn can reduce the level of underpricing.

High profitability shows that companies have good performance, thus attracting investors and reducing the possibility of underpricing. On the other hand, financial leverage can function as a risk signal, where investors tend to demand higher discounts when companies have significant debt.

Conclusion

This study provides an important insight into the factors that affect the underpricing level during the IPO on the Indonesia Stock Exchange. By understanding the effect of underwriter, auditor, profitability, financial leverage, and EPS reputation, companies can take strategic steps to minimize underpricing and maximize their attractiveness in the eyes of investors. For prospective investors, this analysis is also a guide in evaluating the potential of shares they will buy during the IPO.

Recommendation

Based on the findings of this study, companies that want to do an IPO should pay attention to the reputation of underwriters and maximize their profitability to attract the attention of investors. This will not only reduce the level of underpricing, but also creates long-term value for companies in the eyes of investors.

Limitation of the Study

This study has several limitations, including the use of secondary data, which may not be comprehensive or up-to-date. Additionally, the study only focuses on the Indonesia Stock Exchange and may not be generalizable to other stock exchanges.

Future Research

Future research can build on the findings of this study by exploring other factors that affect the underpricing level, such as market sentiment, investor behavior, and company-specific factors. Additionally, future research can also investigate the impact of underpricing on the company's stock price and financial performance.

References

[List of references cited in the study]

Appendix

[List of tables and figures used in the study]

Abstract

This study aims to analyze the factors that affect the underpricing level during the IPO on the Indonesia Stock Exchange. The study finds that the reputation of underwriters and profitability have a significant negative effect on the underpricing level, while financial leverage has a significant positive effect. The study also finds that the auditor's reputation and EPS do not have a significant effect on the underpricing level. The study provides an important insight into the factors that affect the underpricing level and can be used as a guide for companies and investors in evaluating the potential of shares during the IPO.
Frequently Asked Questions (FAQs) about the Effect of Underwriter Reputation, Auditor's Reputation, Profitability, Financial Leverage and Earning Per Share (EPS) on the Underpricing Level at the Initial Public Offering (IPO) on the Indonesia Stock Exchange (BEI) in 2010-2015

Q: What is the underpricing phenomenon?

A: The underpricing phenomenon occurs when the stock price of a company that has gone public is traded at a lower price than the price offered in the IPO. This can be due to various factors, including the lack of information about the company, the high demand for the stock, or the low supply of the stock.

Q: What are the factors that affect the underpricing level?

A: The study finds that the reputation of underwriters and profitability have a significant negative effect on the underpricing level, while financial leverage has a significant positive effect. The study also finds that the auditor's reputation and EPS do not have a significant effect on the underpricing level.

Q: What is the role of underwriter reputation in the underpricing level?

A: Underwriter reputation plays an important role in giving trust to investors, which in turn can reduce the level of underpricing. Companies with a good underwriter reputation are more likely to attract investors and reduce the possibility of underpricing.

Q: What is the impact of financial leverage on the underpricing level?

A: Financial leverage can function as a risk signal, where investors tend to demand higher discounts when companies have significant debt. Companies with high financial leverage are more likely to experience a higher underpricing level.

Q: Why did the auditor's reputation and EPS not have a significant effect on the underpricing level?

A: The study suggests that other factors that are more dominant in influencing stock prices during the IPO than the auditor's reputation and EPS performance. This may include market sentiment, investor behavior, and company-specific factors.

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

A: This study provides an important insight into the factors that affect the underpricing level and can be used as a guide for companies and investors in evaluating the potential of shares during the IPO. Companies can take strategic steps to minimize underpricing and maximize their attractiveness in the eyes of investors.

Q: What are the limitations of this study?

A: This study has several limitations, including the use of secondary data, which may not be comprehensive or up-to-date. Additionally, the study only focuses on the Indonesia Stock Exchange and may not be generalizable to other stock exchanges.

Q: What are the future research directions?

A: Future research can build on the findings of this study by exploring other factors that affect the underpricing level, such as market sentiment, investor behavior, and company-specific factors. Additionally, future research can also investigate the impact of underpricing on the company's stock price and financial performance.

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

A: This study provides practical implications for companies and investors in evaluating the potential of shares during the IPO. Companies can take strategic steps to minimize underpricing and maximize their attractiveness in the eyes of investors. Investors can also use this study as a guide in evaluating the potential of shares during the IPO.

Q: What are the policy implications of this study?

A: This study has policy implications for regulatory bodies and stock exchanges. Regulatory bodies and stock exchanges can use this study to develop policies and regulations that promote transparency and fairness in the IPO process.

Q: What are the future research directions for this study?