Underpricing, Board Structure, and Ownership: An Empirical Examination of Indonesian IPO Firms

36 Pages Posted: 6 Apr 2012

See all articles by Salim Darmadi

Salim Darmadi

Indonesia Financial Services Authority (OJK)

Randy Gunawan

Indonesian Tax Office (DJP)

Date Written: April 4, 2012


The objective of this paper is to examine whether underpricing is associated with board structure and corporate ownership among Indonesian IPO firms. To capture the most recent development, the sample comprises 101 firms conducting initial public offerings (IPOs) in Indonesia’s primary equity market from 2003 to 2011. The explanatory variables consist of board size, board independence, ownership concentration, and institutional ownership. Providing some support for the signaling theory, it is found that board independence is positively and significantly related to the level of underpricing. Further, this study provides evidence that the level of underpricing is negatively associated with both board size and institutional ownership, indicating that the two governance mechanisms play important roles in mitigating information asymmetry between the issuer and potential investors. Ownership concentration, whatever the type of the largest shareholder, is insignificant in explaining the first-day returns. The result of this study may be useful for investors in setting expectations regarding the return of their investments in IPO firms in the Indonesian equity market.

Keywords: board structure, corporate governance, Indonesia, IPO, ownership, underpricing

JEL Classification: G14, G28, G32, G34

Suggested Citation

Darmadi, Salim and Gunawan, Randy, Underpricing, Board Structure, and Ownership: An Empirical Examination of Indonesian IPO Firms (April 4, 2012). Available at SSRN: https://ssrn.com/abstract=2034623 or http://dx.doi.org/10.2139/ssrn.2034623

Salim Darmadi (Contact Author)

Indonesia Financial Services Authority (OJK) ( email )

Jalan M.H. Thamrin No. 2
Jakarta, Jakarta 10350

Randy Gunawan

Indonesian Tax Office (DJP) ( email )

Jalan Lapangan Banteng Timur 2-4
Jakarta, Jakarta 12190

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