Board of Commissioners’ Structure, Ownership Retention, and IPO Underpricing: Evidence from Indonesia

Abstract

This research examines how the board of commissioners' structure and ownership retention affect IPO underpricing in Indonesia. In this study, we have examined the following three aspects: the number of board of commissioners, percentage of independent commissioners, and percentage of female commissioners. In total, 186 Indonesian companies that have conducted IPO from 2001 to 2016 were included in this study. This study uses multiple regressions to test the hypothesis. Our findings show that ownership retention has a negative implication on underpricing. Furthermore, the number of board of commissioners and independent commissioners has also been determined to reduce the level of underpricing. However, female commissioners were found to have no significant effect on IPO underpricing; furthermore, it demonstrated no significant effect in reducing the level of underpricing. These results show that higher ownership retention, a smaller number of board members, and a higher percentage of independent commissioners can reduce IPO underpricing.JEL Classification: G30, G32How to Cite:Setiawan, D., Prabowo, M. A., Trinugroho, I., & Noordin, B. A. A. (2021). Board of Commissioners’ Structure, Ownership Retention, and IPO Underpricing: Evidence from Indonesia. Etikonomi, 20(1), 185 – 200. https://doi.org/10.15408/etk.v20i1.19156.

Factors That Affect Underpricing During the Initial Public Offering on Idx

“…The results of this study are in line with the research of (Gusni et al, 2019), (Hidayati and Yuyetta, 2015), and (Auliya and Januarti, 2015), which state that the size of the board of commissioners does not have a significant effect on the level of underpricing and has a negative trend. This study's results differ from those of (Setiawan et al, 2021), (Sukmawati and Pasaribu, 2017), and (Patahita and Yuyetta, 2019). Their research results show that the size of the commissioners' board negatively affects the level of underpricing.…”

“…The larger the size of the commissioner board, the less information asymmetry between companies conducting IPOs and potential investors (Darmadi and Gunawan, 2013). Reduced information asymmetry between companies conducting IPOs and potential investors will cause the level of underpricing to decrease (Setiawan et al, 2021). These findings contradict other findings, which state that the size of the board of commissioners does not affect the level of underpricing (Gusni et al, 2019).…”

“…Board independence commissioner is measured by the number of members of the board of commissioners who come from outside the company (Gusni et al, 2019). Having an independent commissioner can positively impact corporate governance (Setiawan et al, 2021). The absence of the commissioner's relationship with the company makes the independent commissioner able to monitor the company's management objectively and effectively.…”

“…Ownership retention refers to the percentage of shares still maintained and held by the owner (Setiawan et al, 2021). Company owners who still maintain their shares give a positive signal to the capital market that the owners believe in the credibility and prospects of the company (Sundarasen, 2019).…”

“…Company owners who still maintain their shares give a positive signal to the capital market that the owners believe in the credibility and prospects of the company (Sundarasen, 2019). Therefore, according to Setiawan research, the higher the ownership retention, the better it can give a positive signal to the capital market and reduce underpricing (Setiawan et al, 2021). The company's age can show the company's ability to survive and the amount of information that can be absorbed by the public (Ariyanto et al, 2020).…”