The Relationship Between Financial Performance, Underwriter Reputation and IPO Underpricing

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FORMOSA NEWS - Jakarta - Financial Profitability and Reputable Underwriters Mitigate IPO Underpricing Risks in the Indonesian Capital Market. A comprehensive study on the Indonesia Stock Exchange (IDX) reveals that strong corporate profit generation and the selection of highly reputable underwriters are the most effective drivers to minimize the risk of initial public offering (IPO) underpricing. The phenomenon of underpricing, where a company's shares are priced significantly below their actual market value on the first day of trading, remains a dominant obstacle in the Indonesian capital market, affecting 88.54 percent of all companies going public. This extensive market analysis was conducted by financial researchers Inekhe Eka Putri and Vivi Ariyani from Universitas Katolik Widya Mandala Surabaya and published in 2026. By evaluating data from 427 Indonesian companies that launched IPOs over a ten-year period from 2016 to 2025, the researchers captured critical market shifts across pre-pandemic, pandemic, and post-pandemic economic recovery phases. The findings provide an essential, data-backed guide for corporate executives planning to raise capital and for public investors seeking to make rational, calculated investment decisions.

The Market Signal Dilemma: Why IPO Shares Are Priced Too Low
When a privately owned enterprise transitions into a public entity, the primary goal is to secure external capital to fund long-term business expansion, settle outstanding corporate debts, or pursue strategic acquisitions. However, this critical transition is frequently hampered by information asymmetry a market condition where company insiders possess much deeper knowledge about the firm's true risks and future prospects than the general investing public. To bridge this information gap and build immediate investor confidence, issuing companies often deliberately discount their initial share prices. This practice triggers underpricing, allowing early buyers to capture substantial initial returns but leaving significant money on the table for the issuing company. According to market data from the IDX, listing activities have fluctuated wildly in recent years. IPO listings reached a historic peak of 79 companies in 2023, yet plummeted to just 22 companies by 2025, falling far short of the exchange's annual target of 66 companies. To overcome this volatility, companies must send strong, verifiable quality signals to the market through their financial prospectuses. The research team at Universitas Katolik Widya Mandala Surabaya focused on how these corporate signals directly dictate the pricing behavior of new stock listings.

A Simplified Look at the Research Methodology
The empirical study by Inekhe Eka Putri and Vivi Ariyani utilized a quantitative, causal research design to isolate the specific variables driving IPO underpricing. The researchers extracted secondary data from official corporate financial prospectuses and cross-referenced the financial intermediaries against the official top 20 reputable underwriter rankings published by the Indonesia Stock Exchange. Out of an initial population of 471 companies that went public between 2016 and 2025, a strict purposive sampling method filter removed firms with incomplete records, companies that underwent relisting, or those that reported financials in foreign currencies. This meticulous process yielded a final sample size of 427 companies. The research model analyzed three independent corporate indicators:

• Current Ratio (CR): A standard liquidity measure that evaluates a firm's capability to pay off short-term obligations using its immediate current assets.
  
• Return on Assets (ROA): A core profitability ratio that measures how efficiently a company manages its total asset base to generate net income.
  
• Underwriter Reputation: The market credibility of the investment bank managing the stock issuance, categorized using a binary indicator based on whether or not the firm ranks within the top 20 underwriters on the IDX.
  

To maintain strict analytical accuracy, the statistical models developed at Universitas Katolik Widya Mandala Surabaya incorporated company age (years operational before the IPO) and company size (the natural logarithm of total assets) as control variables within an advanced multiple linear regression framework processed via IBM SPSS 25 software.

Key Findings: Investors Value Quality over Short-Term Liquidity

The statistical analysis performed on the 427 public companies uncovered several critical insights regarding investor psychology and capital market dynamics:

• Short-Term Liquidity (CR) Has No Impact on Share Pricing. The regression models proved that a company's Current Ratio (CR) exerts no significant influence on the level of IPO underpricing. On average, the sampled public companies maintained a healthy CR of 2.572, sitting comfortably above the standard financial benchmark of 2.0. Despite this financial stability, potential investors largely overlook short-term liquidity metrics when bidding on new stocks, viewing them as historical data that fails to reflect sustainable, long-term corporate growth.
  
• High Profitability (ROA) Strongly Minimizes Underpricing Risks. In sharp contrast to liquidity, a company's Return on Assets (ROA) demonstrated a powerful, statistically significant negative relationship with IPO underpricing. When an enterprise reports a robust ROA in its prospectus, it broadcasts a clear, positive signal to the market that corporate assets are highly productive. Public investors respond to this efficiency by valuing the company accurately, which naturally reduces the need for steep price discounts and lowers the underpricing rate.
  
• Top 20 Underwriters Serve as a Corporate Value Certification. Employing a top 20 reputable underwriter acts as an institutional guarantee of a company’s corporate quality. The research confirms that listings managed by prestigious underwriters experience significantly lower rates of underpricing. Prominent investment banks carry out rigorous due diligence before taking a firm public, giving investors the confidence that the initial offer price is accurate and fair. Notably, the descriptive data showed that only 34.89 percent of Indonesian issuers utilized top-tier underwriters, while 65.11 percent opted for non-reputable firms, likely due to high underwriting fees.
  
• Long-Standing Corporate History Fosters Market Trust. The inclusion of control variables revealed that older, established companies experience far less underpricing than younger startups. Businesses with longer operating histories are widely perceived by the market as highly stable, structurally transparent, and far less volatile, which minimizes the information gap and encourages fair market pricing.
  

Real-World Implications for Businesses and Market Policy
The empirical insights established by the Universitas Katolik Widya Mandala Surabaya researchers offer immediate practical benefits for corporate leaders, financial advisors, and market policymakers. For small-to-medium enterprises preparing to go public, the research demonstrates that optimizing asset efficiency and maximizing ROA are non-negotiable steps to prevent their equity from being sold too cheaply. For larger corporations, the data indicates that hiring a prestigious, top-tier underwriter is a highly justifiable investment rather than a corporate premium. The certification effect of a reputable underwriter successfully prevents severe equity depreciation during the initial listing day. Furthermore, for public regulatory bodies like the IDX, these findings underscore the importance of designing policies that encourage comprehensive fundamental reporting, ensuring a transparent, balanced, and highly competitive capital market ecosystem.

Author Profiles
Inekhe Eka Putri, S.M. is a financial researcher affiliated with the Department of Management, Faculty of Business at Universitas Katolik Widya Mandala Surabaya. Her academic research specializes in public market mechanics, corporate financial behavior, and investment risk strategies.
Vivi Ariyani, S.E., M.M. is a senior faculty member and researcher at Universitas Katolik Widya Mandala Surabaya. She possesses extensive academic expertise in corporate finance, reporting structures, capital market sentiment analysis, and the micro-dynamics of initial public offerings.

Source

Inekhe Eka Putri, Vivi Ariyani (2026). The Relationship Between Financial Performance, Underwriter Reputation and IPO Underpricing. Jurnal Manajemen Bisnis, Akuntansi dan Keuangan (JAMBAK). Vol. 5, No. 1, Tahun 2026 (Halaman 33-50)
DOI: https://doi.org/10.55927/jambak.v5i1.6
URL: https://journaljambak.my.id/index.php/jambak