Title: Ownership concentration, institutional ownership, and IPO underpricing: evidence from Indonesia Stock Exchange

Authors: Mamduh M. Hanafi; Agus Setiawan

Addresses: Faculty of Economics and Business, Universitas Gadjah Mada, Jalan Humaniora 1, Bulaksumur, Yogyakarta, 55281, Indonesia ' Faculty of Economics and Business, Universitas Gadjah Mada, Jalan Humaniora 1, Bulaksumur, Yogyakarta, 55281, Indonesia

Abstract: Using 182 IPOs in Indonesia Stock Exchange from 2006-2015, we investigate IPO underpricing using agency theory framework. We use two dimensions of agency theory: ownership concentration and institutional ownership. We find that ownership concentration does not have effect on IPO underpricing, while institutional ownership negatively affects IPO underpricing. Institutional ownership seems to be able to monitor IPO underpricing, leading to smaller loss from IPO underpricing. We conduct further investigation. First, we find that institutional ownership does not moderate the effect of ownership concentration on IPO underpricing. Second, we find that the negative effect of institutional ownership on IPO underpricing is stronger when the level of institutional ownership is low. Higher level of institutional ownership seems to increase principal-principal agency conflict and to reduce monitoring effect of institutional ownership. Our results highlight the importance of ownership in company affairs.

Keywords: underpricing; ownership concentration; institutional ownership; agency conflict; Indonesia market; Indonesia.

DOI: 10.1504/IJGFI.2018.091476

International Journal of Governance and Financial Intermediation, 2018 Vol.1 No.1, pp.3 - 17

Received: 21 Nov 2016
Accepted: 24 Mar 2017
Published online: 02 May 2018 *