Abstract
Specific information on the IPO prospectus can affect the stock's market performance, both the initial returns and the long-term performance. The disclosure of the purpose of IPO proceeds to: acquisition, investment, group financing, debt repayment and working capital, as a specific form of information is indicated to affect both initial return and long-term stock returns. We conducted a test of 148 IPOs on the Indonesia Stock Exchange in the period 2006–2013. Data analysis was performed using OLS and probit regression. The test results show that there is a negative relationship between the intention of the acquisition and debt repayment with underpricing. The results also show that IPOs with the purpose of the debt repayment is positively related to the long-term market performance. The age of the company has a negative effect on IPOs with the purpose of acquisition and debt repayment, while the size of the company proxied by total assets is positively related to the intentions of group financing and debt repayment
Highlights
Information asymmetry influences transaction incentives in the capital market. Healy and Palepu (2001) argues that lack of information can encourage undervalued capital markets against good investment opportunities and overvalued on poor investment opportunities
This study aims to examine the effect of the disclosure of intended use of Initial Public Offerings (IPO) proceeds on underpricing and long-term market performance of IPO in the Indonesian Stock Exchange (IDX)
This study aims to see the relationship between the intended use of IPO proceeds and the market performance of IPO stocks, both initial and long-term returns
Summary
Information asymmetry influences transaction incentives in the capital market. Healy and Palepu (2001) argues that lack of information can encourage undervalued capital markets against good investment opportunities and overvalued on poor investment opportunities. Information asymmetry influences transaction incentives in the capital market. Healy and Palepu (2001) argues that lack of information can encourage undervalued capital markets against good investment opportunities and overvalued on poor investment opportunities. The greatest information asymmetry occurs in the Initial Public Offerings (IPO) event. In the initial public offering of stocks, information about the company is relatively limited in terms of publication and tends to focus on sophisticated investors. The lack of public information on the IPO resulted in common investors facing high investment uncertainty (Ibbotson, Sindelar, & Ritter, 1988; Clarkson, 1994). Lack of handling of information asymmetry, will be a disincentive for investors and increase the potential for market failure. Information disclosure will increase efficiency and incentives for investors. Based on the disclosure of information, investors, especially unsophisticated investors, can moderate the risks through investment in information and utilize the services of capital market support institutions, both information intermediaries and financial intermediaries institutions (Healy & Palepu , 2001)
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