Indonesia has experienced remarkable growth in IPO activity over the last several years. Between 2021 and 2024, 224 companies entered the Indonesia Stock Exchange (IDX), making Indonesia the country with the largest number of IPOs in Southeast Asia. At the same time, the number of retail investors has continued to increase, creating a more dynamic and competitive stock market. During an IPO, investors often have limited information about newly listed companies, making the prospectus, financial performance, and underwriter reputation essential sources of information for investment decisions.
One of the most widely discussed phenomena in IPO markets is the initial return, which measures the difference between the offering price and the stock's closing price on its first trading day. Positive initial returns indicate underpricing, allowing investors to earn immediate gains after listing, while negative initial returns reflect overpricing that may result in investor losses. Understanding what determines these returns is important not only for investors but also for companies planning to go public and financial institutions involved in IPO transactions.
To investigate these determinants, the researchers analyzed 216 companies that conducted IPOs on the Indonesia Stock Exchange between 2021 and 2024. The companies were selected using purposive sampling based on the availability of complete prospectuses and historical trading data. Information was collected from IPO prospectuses, financial statements, and official capital market publications. The analysis focused on four key variables: profitability measured by Return on Assets (ROA), leverage measured by the Debt-to-Equity Ratio (DER), managerial ownership, and underwriter reputation as a moderating variable. Statistical analysis was performed using multiple linear regression and Moderated Regression Analysis (MRA).
The findings reveal that profitability and managerial ownership significantly influence IPO initial returns, but both relationships are negative. Companies with stronger profitability tend to experience lower initial returns because investors perceive them as fundamentally stronger firms that require less IPO underpricing. Likewise, higher managerial ownership is associated with lower initial returns, suggesting that investors view management's retained ownership as a signal of long-term commitment, reducing excessive first-day price fluctuations.
By contrast, leverage does not significantly affect IPO initial returns. The results indicate that debt levels are not among investors' primary considerations during the early stages of stock trading. Instead, market participants tend to focus on short-term expectations and company quality signals rather than long-term capital structure.
The study also highlights the important role of underwriter reputation. Rather than simply assisting companies in issuing shares, reputable underwriters act as credible certifiers of company quality. Their involvement reduces information asymmetry between issuers and investors, helping the market assess a company's true value more accurately.
Several important findings emerged from the research:
- Profitability (ROA) has a significant negative effect on IPO initial returns.
- Managerial ownership also has a significant negative influence on initial returns.
- Leverage (DER) shows no statistically significant relationship with IPO initial returns.
- Underwriter reputation strengthens the relationship between profitability and initial returns.
- Underwriter reputation does not moderate the effects of leverage or managerial ownership on initial returns.
- The regression model explains 50.6 percent of the variation in IPO initial returns, indicating that additional factors beyond those examined also contribute to first-day stock performance.
According to Selvia Dian Palupi and Insyirah Putikadea, investors interpret profitability as a strong indicator of company quality. When profitable companies are supported by reputable underwriters, investor confidence increases because the combination sends a more convincing signal regarding the firm's future prospects. Consequently, companies with stronger financial performance often require less underpricing to attract investor interest.
On the other hand, leverage appears to have limited importance during IPO pricing because investors are more concerned with short-term market opportunities than long-term financial risk. Similarly, managerial ownership functions independently from underwriter reputation, meaning investors evaluate management's shareholding without relying on the credibility of the appointed underwriter.
The findings offer several practical implications for Indonesia's capital market. Companies preparing for IPOs should recognize that financial performance alone may not maximize investor confidence unless supported by reputable financial intermediaries. Selecting experienced and highly regarded underwriters can improve market credibility, reduce uncertainty, and help establish more efficient IPO pricing.
For investors, the research suggests that evaluating IPO opportunities should involve more than examining financial ratios. Underwriter reputation provides additional information regarding the credibility of the offering process and may help investors identify companies with stronger market prospects.
The study also contributes to the academic literature by integrating profitability, leverage, managerial ownership, and underwriter reputation within a single analytical framework. While previous studies have often examined these variables separately, this research demonstrates that underwriter reputation primarily strengthens profitability signals rather than influencing all financial indicators equally.
The authors acknowledge that their research is limited to companies listed on the Indonesia Stock Exchange between 2021 and 2024. Future studies are encouraged to examine industry-specific financial indicators, alternative methods for measuring underwriter reputation, and post-IPO stock performance over longer observation periods. Such research could provide a more comprehensive understanding of how market perceptions evolve after companies become publicly traded.
Author Profiles
Selvia Dian Palupi is a researcher from the State University of Surabaya (Universitas Negeri Surabaya) whose research interests include capital markets, corporate finance, initial public offerings, and investment analysis.
Insyirah Putikadea is a lecturer and researcher at the State University of Surabaya (Universitas Negeri Surabaya) specializing in financial management, corporate governance, and capital market studies.
Research Source
Palupi, S. D., & Putikadea, I. (2026). Determinants of IPO Initial Return with Underwriter Reputation as a Moderation Variable. International Journal of Management and Business Intelligence (IJBMI), Vol. 4, No. 3, pp. 489–504.
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