Does IPO underpricing affect long-term growth performance? An analysis of underpriced IPOs in Jakarta stock exchange
Signaling model and other theories such as Rock's winner curse suggest that underpricing is a signal to show firm's quality. The study develops to prove that theory by finding the correlation of IPO underpricing and long-term growth of underpriced firms. The accounting measurements used are gross sales, EBIT, and fixed assets. It compares the coefficient of correlation and coefficient of determination for 4 consecutive years after the IPO. The findings show that the correlation between IPO underpricing and long-term growth is very weak and statistically insignificant. This shows that IPO underpricing in Indonesia is not a signal of firm's quality when measured by sales, EBIT, and fixed assets long-term growth rates.
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