The Impact of Company Size on Underpricing Levels

Oct 13, 2025 by magicalceylontours.com 42 views

The Effect of Factors on Underpricing Levels on IPOs on the Indonesia Stock Exchange (2018-2020)

In the world of capital markets, the initial public offering (IPO) process is a crucial step for companies to secure funding from the public. However, the underpricing level, which is the difference between stock offering prices and market prices after shares begin to be traded, is often a concern. This study aims to examine the effect of the percentage of stock supply, company size, auditor's reputation, underwriter reputation, and return on assets on the underpricing level in companies that conduct IPOs on the Indonesia Stock Exchange (IDX) in the 2018 to 2020 period.

Research Methodology

This study employs a causal associative approach by relying on secondary data. The population taken was a company that did an IPO on the IDX during the 2018-2020 period, as many as 165 companies. Through the purposive sampling method, 120 companies were selected that met certain criteria. Data analysis is carried out with descriptive statistical analysis techniques and multiple linear regression analysis.

Findings and Analysis

The results showed that partially, company size, underwriter reputation, and return on assets have a significant negative effect on the underpricing level. This shows that companies with larger sizes, good underwriter reputation, and high performance on assets tend to experience a lower underpricing level. On the other hand, the percentage of stock offers and auditor's reputation did not show a significant effect on underpricing.

Deeper analysis of this relationship can provide an overview of investor behavior. Investors tend to give a better assessment to large and outstanding companies, so that their level of trust and interest in investing will be higher. Conversely, companies that are less well known or have an unfavorable auditor's reputation may experience a higher underpricing rate, because investors assess the greater risk.

Simultaneously, all variables studied (percentage of stock offers, company size, auditor reputation, underwriter reputation, and return on asset) have a significant effect on underpricing levels. This can be interpreted that these factors are interrelated and contribute to determining stock prices at the time of the IPO.

The Adjusted R Square value of 0.130 shows that only 13% of the underpricing level variations can be explained by this research model, while the remaining 87% is influenced by other variables that are not studied. This shows the need for further research to identify additional factors that may contribute to the underpricing level.

The Impact of Company Size on Underpricing Levels

Company size is one of the most significant factors that influence underpricing levels. Companies with larger sizes tend to experience a lower underpricing level. This is because investors tend to give a better assessment to large and outstanding companies, resulting in higher trust and interest in investing. Conversely, companies that are less well known or have an unfavorable auditor's reputation may experience a higher underpricing rate.

The Role of Underwriter Reputation on Underpricing Levels

Underwriter reputation is another significant factor that influences underpricing levels. Companies with good underwriter reputation tend to experience a lower underpricing level. This is because investors tend to trust underwriters with good reputation, resulting in higher trust and interest in investing.

The Effect of Return on Assets on Underpricing Levels

Return on assets is also a significant factor that influences underpricing levels. Companies with high performance on assets tend to experience a lower underpricing level. This is because investors tend to give a better assessment to companies with high performance, resulting in higher trust and interest in investing.

The Impact of Percentage of Stock Offers on Underpricing Levels

The percentage of stock offers is not a significant factor that influences underpricing levels. This is because the percentage of stock offers does not have a direct impact on investor behavior.

The Role of Auditor Reputation on Underpricing Levels

Auditor reputation is not a significant factor that influences underpricing levels. This is because auditor reputation does not have a direct impact on investor behavior.

Conclusion

From the results of this study, it can be concluded that the company size, underwriter reputation, and return on assets have a significant effect on the level of underpricing on companies that conduct IPOs on the IDX. While the percentage of stock offers and auditor's reputation does not show significant effects. These findings provide insight for investors and companies who plan to conduct IPOs, as well as enriching the literature regarding underpricing in the Indonesian capital market. By understanding the factors that influence underpricing, companies can plan more effective strategies in the implementation of IPOs in the future.

Recommendations

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

Companies should focus on building a strong reputation and increasing their size to reduce underpricing levels.
Underwriters should focus on building a good reputation to increase trust and interest in investing.
Companies should focus on improving their performance on assets to reduce underpricing levels.
Further research should be conducted to identify additional factors that may contribute to underpricing levels.

Limitations of the Study

This study has several limitations, including:

The study only focuses on companies that conducted IPOs on the IDX during the 2018-2020 period.
The study only examines the effect of five variables on underpricing levels.
The study does not control for other factors that may influence underpricing levels.

Future Research Directions

Future research should focus on identifying additional factors that may contribute to underpricing levels. Some potential research directions include:

Examining the effect of other variables on underpricing levels, such as market conditions and economic indicators.
Conducting a longitudinal study to examine the effect of underpricing levels over time.
Conducting a comparative study to examine the effect of underpricing levels in different countries or regions.
Frequently Asked Questions (FAQs) about the Effect of Factors on Underpricing Levels on IPOs on the Indonesia Stock Exchange (2018-2020)

In this article, we will answer some of the most frequently asked questions about the effect of factors on underpricing levels on IPOs on the Indonesia Stock Exchange (2018-2020).

Q: What is underpricing in the context of IPOs?

A: Underpricing refers to the difference between the stock offering price and the market price after shares begin to be traded. In other words, it is the amount by which the stock price falls after the IPO.

Q: What are the factors that influence underpricing levels?

A: The factors that influence underpricing levels include company size, underwriter reputation, return on assets, percentage of stock offers, and auditor reputation.

Q: How does company size affect underpricing levels?

A: Companies with larger sizes tend to experience a lower underpricing level. This is because investors tend to give a better assessment to large and outstanding companies, resulting in higher trust and interest in investing.

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

A: Underwriter reputation is a significant factor that influences underpricing levels. Companies with good underwriter reputation tend to experience a lower underpricing level. This is because investors tend to trust underwriters with good reputation, resulting in higher trust and interest in investing.

Q: How does return on assets affect underpricing levels?

A: Return on assets is also a significant factor that influences underpricing levels. Companies with high performance on assets tend to experience a lower underpricing level. This is because investors tend to give a better assessment to companies with high performance, resulting in higher trust and interest in investing.

Q: What is the impact of percentage of stock offers on underpricing levels?

A: The percentage of stock offers is not a significant factor that influences underpricing levels. This is because the percentage of stock offers does not have a direct impact on investor behavior.

Q: What is the role of auditor reputation in underpricing levels?

A: Auditor reputation is not a significant factor that influences underpricing levels. This is because auditor reputation does not have a direct impact on investor behavior.

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

A: The findings of this study provide insight for investors and companies who plan to conduct IPOs. By understanding the factors that influence underpricing, companies can plan more effective strategies in the implementation of IPOs in the future.

Q: What are the limitations of this study?

A: This study has several limitations, including:

The study only focuses on companies that conducted IPOs on the IDX during the 2018-2020 period.
The study only examines the effect of five variables on underpricing levels.
The study does not control for other factors that may influence underpricing levels.

Q: What are the future research directions?

A: Future research should focus on identifying additional factors that may contribute to underpricing levels. Some potential research directions include:

Examining the effect of other variables on underpricing levels, such as market conditions and economic indicators.
Conducting a longitudinal study to examine the effect of underpricing levels over time.
Conducting a comparative study to examine the effect of underpricing levels in different countries or regions.

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

A: The findings of this study have practical implications for companies and investors. Companies can use this information to plan more effective strategies in the implementation of IPOs, while investors can use this information to make more informed investment decisions.

Q: What are the policy implications of this study?

A: The findings of this study have policy implications for regulatory bodies and government agencies. Regulatory bodies and government agencies can use this information to develop more effective policies and regulations to promote the development of the capital market.

Q: What are the future directions for research in this area?

A: Future research in this area should focus on identifying additional factors that may contribute to underpricing levels. Some potential research directions include:

Examining the effect of other variables on underpricing levels, such as market conditions and economic indicators.
Conducting a longitudinal study to examine the effect of underpricing levels over time.
Conducting a comparative study to examine the effect of underpricing levels in different countries or regions.