Conceptual Analysis: Internal and External Determinants of IPO Underpricing in Indonesia (ABIS Accounting and Business Information Systems Journal)

Summary

• The full implementation of the e-IPO electronic system since 2021 changed the traditional bookbuilding allocation processp.6
• Internal quantitative factors such as Return on Equity (ROE) and qualitative metrics like ownership retention act as positive signals reducing underpricingp.3
• Underpricing serves as a compensation premium to offset information asymmetry risk for uninformed investors facing the winner's cursep.5
• Traditional external factors like underwriter reputation showed no significant impact on IPO underpricing levels in recent periods following e-IPO standardizationp.6

Key insights

1. A total of 115 out of 146 companies listing between 2023 and 2025 suffered from underpricing on their first trading day on the secondary market.p.2
2. Underpricing creates indirect costs for issuing companies due to lost opportunity from uncollected capital.p.4
3. The implementation of the e-IPO system in 2021 standardized stock allocation and limited traditional prerogatives of underwriters.p.6
4. Uninformed investors facing the winner's curse are compensated for information asymmetry risks through initial returns provided by underpricing.p.5
5. High ownership retention by original owners post-IPO signals confidence in company prospects and helps lower underpricing.p.6
6. Larger IPO proceed sizes do not automatically reduce underpricing due to persistent concerns over transparency in funds usage.p.6
7. Company age serves as a signaling mechanism indicating governance maturity and reducing the need for steep primary market discounts.p.6