THE DETERMINANTS OF INITIAL PUBLIC OFFERING (IPO) UNDERPRICING LEVEL IN INDONESIA STOCK EXCHANGE (CASE STUDY ON FINANCIAL SECTOR COMPANIES WHICH CONDUCTING IPO DURING PERIOD 2002 - 2011)

Abstract

Underpricing is the increasing of Initial Public Offering (IPO) price in secondary market compared with the IPO price in the primary market, this increasing price is the advantage for investors who bought shares in the primary market because of profit gain when the shares are sold in the secondary market, the profit is known as the initial return. Underpricing is a phenomenon that is often encountered in the IPO. There is a tendency that the initial price in the primary market is always lower than the closing price on the first day trading in the secondary market. This underpricing stock level could be influence both inside and outside company factors. The factors that come from company such as auditor quality, underwriter reputation, company’s age, the level of shares that offered to the public when IPO, return on total assets, financial leverage, solvability ratio, and firm size. The factors that come from outside company such as interest rate, currency exchange rate, inflation, economic growth level, political condition, and security condition. From the previous researches can be acquired some evidences which declare that those factors have significant influences with IPO underpricing existed and rate of initial return. This research has the objective to prove whether firm age, firm size, earning per share (EPS), percentage of total shares offered and debt to equity ratio (DER) has partially influence and together toward the level of IPO underpricing. Moreover, this research would like to serve for a better understanding about IPO underpricing phenomenon. The analysis of data in this research use multiple regression analysis by using statistical software to identify the effect of independent variables which are firm age, firm size, EPS, percentage of total shares offered and DER to dependent variable which is IPO underpricing. Based on the multiple regression analysis, independent variables have significant effect together toward the level of IPO underpricing. From five independent variables, firm size and DER partially has significant effect to IPO underpricing.