The Importance of Understanding Underpricing

Oct 13, 2025 by recoveryshake.com 133 views

Analysis of Return on Assets, Financial Leverage, Firm Size, and Company Age with Underpricing Shares in Manufacturing Companies on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of companies listed on its platform. Among these companies, manufacturing firms play a significant role in driving economic growth and development. However, when it comes to initial public offerings (IPOs), these companies often face the challenge of underpricing their shares. Underpricing occurs when the market price of a company's shares is lower than its expected value. This phenomenon can have significant implications for investors, company management, and the overall capital market.

The Importance of Understanding Underpricing

Underpricing is a complex issue that has been studied extensively in the context of financial markets. It is essential to understand the factors that contribute to underpricing in order to make informed investment decisions and to minimize the risks associated with IPOs. In this study, we aim to analyze the relationship between Return on Assets (ROA), Financial Leverage, Company Size, and Company Age of underpricing shares in manufacturing companies listed on the Indonesia Stock Exchange.

Methodology

This study employed a secondary data approach, utilizing data obtained from the Indonesia Stock Exchange. The analytical method applied to see the relationship between each independent variable and the dependent variable is descriptive analysis and Pearson correlation analysis. The study is associative, linking two or more variables, as well as observing how one variable affects other variables.

The Relationship between Variables

The results of this study show that the financial leverage variable and company age have a significant relationship with the shares underpricing. Financial leverage reflects the use of debt in the company's capital structure, which can affect investor perceptions of risk and profit potential. When the company has a high level of debt, it will usually be expected to produce a higher return, so that it can cause greater investor interest, especially during IPO.

Meanwhile, the age of the company also plays an important role. Older companies are often considered more stable and have a better track record, so it tends to be more attractive to investors. Therefore, the older the company's age, usually the lower the underpricing level that occurs, because the company already has a more established reputation in the market.

However, the results of the study also showed that Return on Assets (ROA) and company size do not have a significant relationship with underpricing. This may be caused by the fact that ROA, although it is an important financial performance indicator, does not always reflect the future prospects of the company when conducting a first public offering. Likewise with the size of the company; Although large companies tend to have more resources, it does not mean they always get lower underpricing during IPO.

Implication of Findings

These findings have important implications for investors and company management. Investors need to pay attention to factors such as financial leverage and company age when evaluating shares to be invested, especially those who are just on the floor. On the other hand, company management needs to consider capital structure and efforts to build a company's reputation in order to affect market perceptions and minimize underpricing levels.

Through a deeper understanding of the factors that influence underpricing, all parties involved in the capital market are expected to make better decisions. Thus, not only investors benefit, but also companies that make the first public offering, because of the greater trust than the market.

Conclusion

In conclusion, this study provides valuable insights into the factors that contribute to underpricing in manufacturing companies listed on the Indonesia Stock Exchange. The findings of this study have important implications for investors and company management, and highlight the need for a deeper understanding of the factors that influence underpricing. By analyzing the relationship between Return on Assets, Financial Leverage, Company Size, and Company Age, this study contributes to the growing body of research on financial and investment studies, especially in the context of the Indonesian capital market.

Recommendations

Based on the findings of this study, the following recommendations are made:

Investors should pay attention to factors such as financial leverage and company age when evaluating shares to be invested.
Company management should consider capital structure and efforts to build a company's reputation in order to affect market perceptions and minimize underpricing levels.
Further research should be conducted to explore the relationship between other variables and underpricing in manufacturing companies listed on the Indonesia Stock Exchange.

Limitations

This study has several limitations that should be noted. Firstly, the study employed a secondary data approach, which may limit the generalizability of the findings. Secondly, the study only analyzed the relationship between Return on Assets, Financial Leverage, Company Size, and Company Age, and did not explore other variables that may contribute to underpricing. Finally, the study only focused on manufacturing companies listed on the Indonesia Stock Exchange, and did not consider other types of companies or stock exchanges.

Future Research Directions

Future research should aim to explore the relationship between other variables and underpricing in manufacturing companies listed on the Indonesia Stock Exchange. Some potential research directions include:

Analyzing the relationship between other financial performance indicators and underpricing.
Exploring the impact of market conditions on underpricing.
Investigating the role of corporate governance in minimizing underpricing levels.

By exploring these research directions, future studies can provide a more comprehensive understanding of the factors that contribute to underpricing in manufacturing companies listed on the Indonesia Stock Exchange.
Q&A: Understanding Return on Assets, Financial Leverage, Firm Size, and Company Age with Underpricing Shares in Manufacturing Companies on the Indonesia Stock Exchange

Q: What is underpricing, and why is it important to understand?

A: Underpricing is a phenomenon where the market price of a company's shares is lower than its expected value. It is essential to understand underpricing because it can have significant implications for investors, company management, and the overall capital market.

Q: What are the key factors that contribute to underpricing in manufacturing companies listed on the Indonesia Stock Exchange?

A: The key factors that contribute to underpricing in manufacturing companies listed on the Indonesia Stock Exchange are financial leverage, company age, Return on Assets (ROA), and company size.

Q: How does financial leverage affect underpricing?

A: Financial leverage reflects the use of debt in the company's capital structure, which can affect investor perceptions of risk and profit potential. When the company has a high level of debt, it will usually be expected to produce a higher return, so that it can cause greater investor interest, especially during IPO.

Q: What is the role of company age in underpricing?

A: The age of the company also plays an important role. Older companies are often considered more stable and have a better track record, so it tends to be more attractive to investors. Therefore, the older the company's age, usually the lower the underpricing level that occurs, because the company already has a more established reputation in the market.

Q: Why do ROA and company size not have a significant relationship with underpricing?

A: This may be caused by the fact that ROA, although it is an important financial performance indicator, does not always reflect the future prospects of the company when conducting a first public offering. Likewise with the size of the company; Although large companies tend to have more resources, it does not mean they always get lower underpricing during IPO.

Q: What are the implications of these findings for investors and company management?

A: Investors need to pay attention to factors such as financial leverage and company age when evaluating shares to be invested, especially those who are just on the floor. On the other hand, company management needs to consider capital structure and efforts to build a company's reputation in order to affect market perceptions and minimize underpricing levels.

Q: How can investors make better decisions based on these findings?

A: By understanding the factors that contribute to underpricing, investors can make more informed decisions about which shares to invest in. They should pay attention to factors such as financial leverage and company age, and consider the potential risks and rewards of investing in a particular company.

Q: What are the potential benefits of understanding underpricing for companies that make the first public offering?

A: By understanding the factors that contribute to underpricing, companies that make the first public offering can take steps to minimize the risks associated with underpricing. This can help to build trust with investors and increase the value of their shares.

Q: What are the potential limitations of this study?

A: This study has several limitations that should be noted. Firstly, the study employed a secondary data approach, which may limit the generalizability of the findings. Secondly, the study only analyzed the relationship between Return on Assets, Financial Leverage, Company Size, and Company Age, and did not explore other variables that may contribute to underpricing. Finally, the study only focused on manufacturing companies listed on the Indonesia Stock Exchange, and did not consider other types of companies or stock exchanges.

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

A: Future research should aim to explore the relationship between other variables and underpricing in manufacturing companies listed on the Indonesia Stock Exchange. Some potential research directions include:

Analyzing the relationship between other financial performance indicators and underpricing.
Exploring the impact of market conditions on underpricing.
Investigating the role of corporate governance in minimizing underpricing levels.