Value Relevance of Accounting Information and IPO Performance in Indonesia

Abstract

Therelationship between ex-ante measures of uncertainty of IPO firms and post-IPOmarket performance is well documented in the extant empirical literature both withinthe context developed and emerging markets. The present study is the first toinvestigate the impact of ex-ante uncertainty, as proxied by various financialratios and other information reported in the prospectuses, on the short-runperformance the Indonesian IPO firms using a sample of 71 IPOs over the sampleperiod 2000 through 2008. Results reported in the present study indicate thepresence of a high average market-adjusted first-day IPO return, about 53%, inIndonesia. Furthermore, this strong initial IPO returns in Indonesia arereported to be positively related to the proxy of risk of financial distressbut negatively related to proxies of past profitability and the degree ofestablishment of the issuing firms. The empirical evidence documented in thepresent study conform to a prioriexpectations and are consistent with the empirical evidence reported for otherdeveloped and emerging markets.  Theresults reported in this study should be comforting for the general investorsand regulators given the long standing perception of poor quality of accountinginformation in Indonesia.  Also, theregulators in smaller-emerging markets would be encouraged by the resultsdocumented in the current study as these results attest to the positive impactof reform measures and relevant regulations on the reliability/quality ofaccounting numbers.