IPO Underpricing and Corporate Governance: Evidence from Indonesian Equity Market

The purpose of this paper is to examine whether and how the effect of the board strucure and the ownership structure toward the underpricing of firms conducting initial public offerings (IPOs) in the Indonesia as well as through auditor reputation and underwriter reputation. This research using partial least square and carried out with the help of software WarpPLS 6.0. To capture the most recent development, this research had a sample of 101 firms conducting IPOs in Indonesia’s primary equity market from 1 January 2012 to 31 December 2017. Findings –the result present support for signaling theory, where board size has a negative effect on underpricing, board independence has a negative effect to the level of underpricing significantly. Indicating that these two governance mechanisms play roles in mitigating information asymmetry between the issuer and potential investors. Further, this study provides evidence that the level of underpricing is also affected by institutional ownership significantly. The concentration of ownership affected but not significantly related to underpricing. When the mediating variables is processed in further analysis, it is revealed that partial mediation of auditor reputation and underwriter reputation on board size on underpricing and full mediation of underwriter reputation on ownership concentration on underpricing.