IPO Underpricing: Financial Vulnerability and Corporate Financial Behavior Disclosure
DOI:
https://doi.org/10.38043/jimb.v11i1.7657Keywords:
IPO Underpricing, Financial Vulnerability, Corporate Financial Behavior Index, Investor Perception, Firm CharacteristicsAbstract
By examining the effects of financial vulnerability, corporate financial conduct, profitability, and company size on IPO underpricing, the research aimed to clarify how IPO pricing was affected by firm-level financial features and how the market responded to these financial signals. A regression analysis across several model specifications was applied to 268 Indonesian non-financial public companies from 2017 to 2025, which experienced underpricing on the first day of their IPOs. The findings demonstrated that underpricing was positively associated with financial fragility in the baseline model but became negligible in the extended models, suggesting that the effect varied with firm characteristics. Underpricing was consistently and negatively affected by corporate financial behavior, indicating that improved financial discipline reduced information asymmetry and boosted investor confidence. Underpricing was found to be positively impacted by profitability, indicating that better financial results were linked to higher investor demand, as evidenced by underpricing results. On the other hand, firm size had a negative impact; thus, with less ambiguity, larger firms underpriced less. Overall, the results showed that, in addition to fundamentals, investor behavior, as inferred from market responses to financial signals, also affected IPO underpricing. The findings highlight the managerial implications of maintaining financial discipline for businesses preparing to go public, as evidenced by improved corporate financial behavior aimed at reducing underpricing. The practical implication is that investors must carefully assess profitability signals and avoid overreacting, as overreaction can lead to mispricing, especially in developing countries like Indonesia. The study also emphasizes the importance of strengthening transparency and disclosure rules to help regulators and legislators reduce information asymmetry and improve market efficiency.
Downloads
References
Acharya, V. V, & Steffen, S. (2020). The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID. The Review of Corporate Finance Studies, 9(3), 430471. https://doi.org/10.1093/rcfs/cfaa013
Adnan. (2023). Modeling Herding Behavior in the Indonesian Capital Market. International Journal of Economics, Business and Management Research, 07(04), 167179. https://doi.org/10.51505/ijebmr.2023.7413
Albada, A., Low, S. W., & Toh, M. Y. (2023). Divergence of Beliefs and IPO Initial Return: The Quasi-Moderating Role of Investor Demand. Journal of Asian Business and Economic Studies, 30(4), 296308. https://doi.org/10.1108/JABES-12-2021-0206
Ali, Raza, S. A., & Khan, K. A. (2023). Asymmetric Market Efficiency of the Eurozone Using the MF-DFA: a Comparison between Global Financial Crisis and COVID-19 Era. European Journal of Management and Business Economics. https://doi.org/10.1108/EJMBE-04-2021-0116
Arhinful, R., & Radmehr, M. (2023). The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange. Sage Open, 13(4). https://doi.org/10.1177/21582440231204099
Asbaruna, L. W. B., Gorib, R. I., & Syifa, M. A. A. (2023). Behavioral Finance In Investment Decisions. International Journal of Ethno-Sciences and Education Research, 3(3), 9598. https://doi.org/10.46336/ijeer.v3i3.460
Ben Abdallah, M., & Bahloul, S. (2024). The Influence of Solvency and Liquidity Ratios on Profitability of Tunisian Banks: The Moderating Effect of Asset Quality. African Journal of Economic and Management Studies, 116. https://doi.org/10.1108/AJEMS-02-2024-0136
Carbone, E., Mussolino, D., & Vigan, R. (2024). Timing the Transition: Gender Diversitys Role in Family IPOs. Management Decision, 62(13), 156187. https://doi.org/10.1108/MD-01-2023-0085
Chen, K., Li, X., Wan, Q., Ye, J., & Yang, M. (2024). Do Anti-Takeover Provisions Restrain IPO Underpricing? An Analysis from the Perspective of Information Asymmetry. China Accounting and Finance Review, 26(1), 5575. https://doi.org/10.1108/cafr-10-2022-0111
Chenini, H., & Jarboui, A. (2024). The Specific Factors of Heterogeneity Characterizing Investors Beliefs. Journal of Economics, Finance and Administrative Science, 29(57), 7797. https://doi.org/10.1108/JEFAS-09-2021-0195
de Oliveira, C. H. F., Rodrigues, C. L., & Juc, M. N. (2023). Determinants of IPOs Underpricing: A Systematic Review. Contemporary Economics, 17(3), 252274. https://doi.org/10.5709/CE.1897-9254.509
Fadila, A., Utami, K., & Veteran Jakarta, U. (2020). IPO Underpricing di Indonesian Stock Exchange. Journals of Economics and Business Mulawarman (JEBM), 16(2), 214222. http://journal.feb.unmul.ac.id/index.php/INOVASI
Fahlenbrach, R., Rageth, K., & Stulz, R. M. (2021). How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis. The Review of Financial Studies, 34(11), 54745521. https://doi.org/10.1093/rfs/hhaa134
Fllbrunn, S., Neugebauer, T., & Nicklisch, A. (2020). Underpricing of Initial Public Offerings in Experimental Asset Markets. Experimental Economics, 23(4), 10021029. https://doi.org/10.1007/s10683-019-09638-7
Gupta, S., & Shrivastava, M. (2022). Herding and Loss Aversion in Stock Markets: Mediating Role of Fear of Missing Out (FOMO) in retail investors. International Journal of Emerging Markets, 17(7), 17201737. https://doi.org/10.1108/IJOEM-08-2020-0933
Hanafi, M. M., Humaniora, J., & Yogyakarta, B. (2016). Analysis of IPO Underpricing Fluctuation: Empirical Study In Indonesia Stock Exchange. Jurnal Dinamika Manajemen, 7(2), 129138. http://jdm.unnes.ac.id
Hristov, I., Cristofaro, M., & Cimini, R. (2023). Non-Financial Resources to Enhance Companies Profitability: A Stakeholder Perspective. Management Research Review, 47(13), 2250. https://doi.org/10.1108/MRR-02-2023-0131
Isynuwardhana, D., & Febryan, F. V. (2022). Factors Affecting Underpricing Level during IPO in Indonesia Stock Exchange 2018 - 2019. The Indonesian Accounting Review, 12(1), 8798. https://doi.org/10.14414/tiar.v12i1.2660
Jamaani, F., & Alidarous, M. (2019). Review of Theoretical Explanations of IPO Underpricing. Journal of Accounting, Business and Finance Research, 6(1), 118. https://doi.org/10.20448/2002.61.1.18
Kuswanto, R. (2020). Disclosure of Risk Factors on Prospectus and Initial Public Offerings (IPO) Performance: Evidence from Indonesia. Jurnal Ilmiah Akuntansi Dan Bisnis, 15(1), 15. https://doi.org/10.24843/JIAB.2020.v15.i01.p02
Li, R., Liu, W., Liu, Y., & Tsai, S.-B. (2018). IPO Underpricing After the 2008 Financial Crisis: A Study of the Chinese Stock Markets. Sustainability, 10(8), 2844. https://doi.org/10.3390/su10082844
Lpez-de-Foronda, ., Lpez-de-Silanes, F., Lpez-Iturriaga, F. J., & Santamara-Mariscal, M. (2019). Overinvestment, Leverage and Financial System Liquidity: A challenging Approach. BRQ Business Research Quarterly, 22(2), 96104. https://doi.org/10.1016/j.brq.2018.08.001
Ma, Y., Li, Y., & Li, Z. (2025). Are Investors Influenced by the Textual Information in IPO Prospectuses? Examining IPO Pricing Based on Textual Information Management. International Review of Financial Analysis, 107, 104608. https://doi.org/10.1016/j.irfa.2025.104608
Mehmood, W., Mohd-Rashid, R., Ong, C. Z., & Abbas, Y. A. (2021). Factors Driving IPO Variability: Evidence from Pakistan Stock Exchange. Journal of Economics, Finance and Administrative Science, 26(52), 300316. https://doi.org/10.1108/JEFAS-04-2021-0036
Memarista, G., & Prasetio, A. L. (2025). When the Crowd Moves: Investor Herding in Indonesias Bull and Bear Markets. Journal of Management and Entrepreneurship Research, 6(2), 124138. https://doi.org/10.34001/jmer.2025.6.06.2-65
Memarista, G., & Puspita, A. M. A. (2021). Young Investors Instagram Usage Behavior and Investment Risk Appetite. Management Research and Behavior Journal, 1(1), 1525. https://doi.org/10.29103/mrbj.v1i1.3849
Memarista, G., Wijaya, O., Cahyadi, T., & Afandi, M. (2022). Does Risk Taking Behavior Drive MSME Innovation During Covid-19 Pandemic? Matrik: Jurnal Manajemen, Strategi Bisnis Dan Kewirausahaan, (1), 179193. https://doi.org/https://doi.org/10.24843/MATRIK:JMBK.2022.v16.i01.p14
Murhadi, W. (2025). The Effect of Overconfidence, Representative, Anchoring, and Availability Biases on Investment Decisions and Market Efficiency. Matrik: Jurnal Manajemen, Strategi Bisnis Dan Kewirausahaan, 18(2). https://doi.org/10.24843/MATRIK:JMBK.2024.v18.i02.p03
Naveed, M., Ali, S., Iqbal, K., & Sohail, M. K. (2020). Role of Financial and Non-Financial Information in Determining Individual Investor Investment Decision: a Signaling Perspective. South Asian Journal of Business Studies, 9(2), 261278. https://doi.org/10.1108/SAJBS-09-2019-0168
Nguyen, T., Chaiechi, T., Eagle, L., & Low, D. (2020). Growth enterprise market in Hong Kong: Efficiency evolution and long memory in return and volatility. Journal of Asian Business and Economic Studies, 27(1), 1934. https://doi.org/10.1108/JABES-01-2019-0009
Ong, C. Z., Mohd-Rashid, R., Anwar, A., & Mehmood, W. (2023). Earnings Forecast Disclosures and Oversubscription Rates of Fixed-Price Initial Public Offerings (IPOs): The Case of Malaysia. Journal of Asian Business and Economic Studies, 30(4), 270282. https://doi.org/10.1108/JABES-03-2022-0065
Rabbani, M. R., Azam, M. Q., Hawaldar, I. T., Aljalahma, R., & Dsouza, S. (2024). Does an Overconfidence Bias Affect Stock Return, Trading Volume, and Liquidity? Fresh Insights from the G7 Nations. Cogent Economics & Finance, 12(1). https://doi.org/10.1080/23322039.2024.2373266
Shah, T. A., Naveed, & Hussain, I. (2024). The Effect of Herding Behavior on Investment Decision: Moderating Effect of Over-Confidence. Qlantic Journal of Social Sciences and Humanities, 5(3), 132146. https://doi.org/10.55737/qjssh.381051524
Suhadak, Kurniaty, Handayani, S. R., & Rahayu, S. M. (2019). Stock return and financial performance as moderation variable in influence of good corporate governance towards corporate value. Asian Journal of Accounting Research, 4(1), 1834. https://doi.org/10.1108/AJAR-07-2018-0021
Sunarko, C. S., & Rasyid, R. (2023). Analysis of Factors Affecting Underpricing in Companies Conducting Initial Public Offerings. International Journal of Application on Economics and Business (IJAEB), 1(2), 29871972. https://doi.org/10.24912/ijaeb.v1.i2.162-176
Teti, E., & Montefusco, I. (2022). Corporate Governance and IPO Underpricing: Evidence from the Italian Market. Journal of Management and Governance, 26(3), 851889. https://doi.org/10.1007/s10997-021-09563-z
Trabelsi, S., & Chalwati, A. (2023). Poison Pills Adoption, Real Earnings Management and IPO Failure. China Accounting and Finance Review, 25(4), 513539. https://doi.org/10.1108/cafr-04-2023-0041
Von Thadden, E.-L., Berglf, E., & Roland, G. (2010). The Design of Corporate Debt Structure and Bankruptcy. Review of Financial Studies, 23(7), 26482679. https://doi.org/10.1093/rfs/hhq019
Wibowo, J. C., Ariefianto, Moch. D., Laurence, L., & Soepriyanto, G. (2025). Resilience, Valuation, and Governance Interactions in Shaping Financial Accounting Manipulation: Evidence from Asia. Journal of Risk and Financial Management, 18(12), 719. https://doi.org/10.3390/jrfm18120719
Yao, Z., & Rabbani, A. G. (2021). Association Between Investment Risk Tolerance and Portfolio Risk: The Role of Confidence Level. Journal of Behavioral and Experimental Finance, 30. https://doi.org/10.1016/j.jbef.2021.100482
Yudhistira, M. A., & Dalimunthe, Z. (2025). Analysis of Investor Behavior Types in Choosing Capital Market Investment Preferences in Indonesia. Eduvest - Journal of Universal Studies, 5(9), 1162711637. https://doi.org/10.59188/eduvest.v5i9.51403
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Gesti Memarista, Kevin Effendy, Nayeon Kim
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
