The Test of IPO’s Underpricing between Financial and Non-Financial Institution Based on Asymmetric Information Hypothesis

12 Pages Posted: 23 Sep 2010

See all articles by Lionardus Ruslim

Lionardus Ruslim

University of Surabaya (UBAYA)

Deddy Marciano

Universitas Surabaya - Faculty of Business & Economics

Liliana Inggrit Wijaya

University of Surabaya (UBAYA)

Date Written: September 22, 2010

Abstract

This research aims to prove underpricing IPO differences between financial institution and non-financial institution during 2001-2008 period. In addition, this research also examined the causes of underpricing IPOs of financial institution and non-financial institution using asymmetric information hypothesis. This research uses initial return and abnormal return as a measure to know which one is better as an underpricing measurement. Furthermore, the calculation in this research is using the open to close prices data to have more accurate results and not biased.

The tests are using one sample t-test, independent t-test, and the ordinary least square regression to analyze the data. One sample t-test is used to prove occurrence of institutions’ underpricing at observation period. Independent t-test is used to determine differences significance in underpricing. Whereas, ordinary least square regression to determine the causes of underpricing. Each test uses an initial return and abnormal return as a measure.

This research found that IPOs are significantly underpriced at the first day of trading. Financial institutions sector’s IPOs are less underpriced than non-financial institutions sectors. This findings means that financial institution sector have less asymmetric information than non-financial institution sectors. This study concludes that the regulation and the monitoring for the financial institution sector have developed better than the previous few years. In addition, there are several factors that affect underpricing. These factors are the type of business entities and trade price volatility in the stock market. The usage of both initial return and abnormal return to measure underpricing level are not significantly different. Furthermore, usage of open to close price data is able to give more accurate results for calculations to measure underpricing level.

Keywords: underpricing, asymmetric information, regulation hypothesis, initial return, abnormal return

Suggested Citation

Ruslim, Lionardus and Marciano, Deddy and Wijaya, Liliana Inggrit, The Test of IPO’s Underpricing between Financial and Non-Financial Institution Based on Asymmetric Information Hypothesis (September 22, 2010). Available at SSRN: https://ssrn.com/abstract=1681213 or http://dx.doi.org/10.2139/ssrn.1681213

Lionardus Ruslim

University of Surabaya (UBAYA) ( email )

Jl. Ngagel Jaya Selatan 169
Surabaya, Jawa Timur 60284
Indonesia

Deddy Marciano (Contact Author)

Universitas Surabaya - Faculty of Business & Economics ( email )

Jl. Ngagel Jaya Selatan 169
Surabaya, Jawa Timur 60284
Indonesia

Liliana Inggrit Wijaya

University of Surabaya (UBAYA)

Jl. Ngagel Jaya Selatan 169
Surabaya, Jawa Timur 60284
Indonesia

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