Long-Term Effect of IPO Underpricing on Aftermarket Liquidity

Abstract

This research examines the long-term effect of IPO underpricing on the aftermarket liquidity for firms that decided to go public on the IDX between the period of 2016 to 2019. Additionally, this research also employs firm size, ownership structure, firm performance, and underwriter reputation as control variables. The sampling method used is a purposive sampling method and a total of 122 companies listed on the IDX’s main and development boards are used as the research samples. The method of analysis used is the multiple regression analysis. The result suggests that IPO underpricing does have a positive effect on aftermarket liquidity when a simple regression is conducted. However, its significance on liquidity is taken over by firm size when multiple regression is performed. The result might suggest that IPO underpricing is no longer relevant in the aftermarket liquidity since there is more information revealed within 12 months after the IPO. Nevertheless, result should be interpreted cautiously due to relatively small sample size, which may warrant further studies.