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The effect of underwriter reputation and market sentiment on IPO underpricing: Evidence from Indonesia

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  • Vivi Ariyani

  • Tatang Ary Gumanti

Abstract

Underpricing is a phenomenon that occurs worldwide, and many factors could affect its variation, either from internal or external aspects. This paper examines whether market sentiment and underwriter reputation explain the cross-sectional variation of underpricing among 424 Indonesian initial public offerings (IPOs) from 2016 to 2024. The study differentiates the data into three groups: the period before, during, and after the COVID-19 pandemic. As predicted, the study shows a significant negative effect of market sentiment and underwriter reputation on the level of IPO underpricing. The adverse effect persists during the pandemic but disappears during the period before and after the pandemic. Age and size of the Board negatively and significantly affect the underpricing level, but company size has a positive and significant effect. The finding implies that investors wishing to gain from the IPO market must select the company underwritten by a reputable underwriter.

Suggested Citation

  • Vivi Ariyani & Tatang Ary Gumanti, 2025. "The effect of underwriter reputation and market sentiment on IPO underpricing: Evidence from Indonesia," Modern Finance, Modern Finance Institute, vol. 3(3), pages 54-65.
    • Handle: RePEc:bdy:modfin:v:3:y:2025:i:3:p:54-65:id:296
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    References listed on IDEAS

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    1. Habib, Michel A & Ljungqvist, Alexander P, 2001. "Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 433-458.
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