ACCOUNTING BETA AS EX ANTE UNCERTAINTY PROXY IN INITIAL PUBLIC OFFERINGS
TATANG ARY GUMANTI, M.BUS.ACC., PH.D.
DWI VENITA WIANDANI, SE
The purpose of this study is to examine the relation between accounting measures of total firm risk and the level f underpricing of initial public offerings (IPOs). A number of studies have shown an association between market and accounting betas. However, most of the studies are performed using a sample of large established firms for which both accounting and market betas can be computed. In case of IPO firms, market betas cannot be computed due to the data limitations associated with private firms. Due to limited information available prior to IPO dates, in particular financial reports, one has to use a proxy to measure risk in an IPO. Accounting variables have been prominently known as potential proxy for ex ante uncertainty in an IPO.
Using a sample of 90 IPOs that went public during 1991-1997 at the Jakarta Stock Exchange, this study finds that the level of underpricing is determined by accounting beta, price to book value ratio and price earnings ratio. The IPO issue size has negative but insignificant association with the level of underpricing.
Keywords: Initial public offerings (IPO), accounting beta, ex ante uncertainty, underpricing,
Theoretical and empirical evidence has indicated that certain accounting measures can be used as proxies for total firm risk, that is, they could determine the riskiness of a corporation (Lev, 1974; Bowman, 1979; DeAngelo, 1990, among others). The literature also suggests that accounting information is relevant in determining the value and thus the riskiness of a corporation through the use of accounting analysis (Brealy and Myers, 1996; Benninga and Sarig, 1997; White et al., 1998, among others). Since most of the information available in the prospectus is accounting information, it is arguable that this information represents a potential source for assessing the quality of the issuing firm.
Some have also advocated the possibility of using accounting information in assessing the value of firm making an IPO (Beaver et al., 1970; Foster, 1986; Lev, 1989; Berstein and Wild, 1998; Noland and Pavlik, 1998). Moreover, Ryan (1997), based on his survey relating accounting numbers and company risk, notes the possibility of incorporating accounting information for measuring the risk of a firm making an IPO in the absence of ex post risk measures prior to the offering. Thus, the focus of the current study is to examine whether accounting measures of total firm risk are associated with the uncertainty surrounding an IPO.
BETA AKUNTANSI SEBAGAI PROKSI KETIDAKPASTIAN EX ANTE DALAM PENAWARAN SAHAM PERDANA (IPO)
* Simposium Nasional Akuntansi 10 - Makassar