The Use of IPO Fund, Underpricing, and Survival: ESG-Driven Insights from Indonesian Firms

Abstract

The IPO prospectus should disclose information on the use of IPO proceeds, which can be a reference for investors in making investment decisions. Companies conduct IPOs for investment, working capital, and debt repayment purposes. The use of IPO fund for investment and working capital gives a positive signal, while debt repayment gives a negative signal. Some companies also implement ESG (Environmental, Social, and Governance) policies after conducting an IPO. This research aims to test whether companies with ESG scores have different underpricing and survival phenomena compared to companies in general. This research was conducted on 148 Indonesian companies that conducted IPOs in the period 2008-2021. The results suggest that the use of IPO proceeds for investment and working capital has a positive effect on underpricing and survival. However, the use of IPO proceeds for debt repayment has no effect on underpricing. Moreover, the use of IPO proceeds for debt repayment in companies that obtain ESG scores has a positive effect on underpricing. Underpricing strengthens the effect of the use of IPO fund for investment on survival occurs in the sample of companies in general as well as companies that obtain ESG scores. The implication of this research suggests that investors do not consider IPOs as a return on debt in companies that obtain ESG scores as a negative signal to invest.