Value Relevance of Accounting Information and IPO Performance in Indonesia

Abstract

The relationship between ex-ante measures of uncertainty of IPO firms and post-IPO market performance is well documented in the extant empirical literature, both within the context of developed and emerging markets. The present study is the first to investigate the impact of ex-ante uncertainty, as proxied by various financial ratios and other information reported in the prospectuses, on the short-run performance of Indonesian IPO firms using a sample of 71 IPOs over the sample period 2000 through 2008. Resultsreported in the present study indicate the presence of a high average market-adjusted first-day IPO return, about 53%, in Indonesia. Furthermore, these strong initial IPO returns in Indonesia are reported to be positively related to the proxy of risk of financial distress but negatively related to proxies of past profitability and the degree of establishment of the issuing firms. The empirical evidence documented in the present study conforms to a priori expectations and are consistent with the empirical evidence reported for other developed and emerging markets. The results reported in this study should be comforting to general investors and regulators given the long-standing perception of the poor quality of accounting information in Indonesia.