The lead underwriter reputation and underpricing: study of company's IPO in Indonesia

We analyse the effect of lead underwriter reputation on underpricing during initial public offering (IPO) in the Indonesia Stock Exchange. This study predicts that companies using reputable lead underwriter will have a low level of underpricing. We analyse 163 companies that conduct an IPO from 2010 to 2017. The analysis results show that the reputation of a lead underwriter has a negative and significant effect on underpricing. This finding has an implication in the selection of underwriter during the IPO. For companies, underpricing is considered as the cost of capital. The higher the level of underpricing, the higher is the cost of capital in the IPO. This means that the funds collected by the firm during IPO are not optimal. Therefore, the findings of this study could be considered in determining the lead underwriter during the IPO.