Impact of family ownership, management, and generations on IPO underpricing and long-run performance

  • Received October 7, 2021;
    Accepted November 15, 2021;
    Published December 1, 2021
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.18(4).2021.23
  • Article Info
    Volume 18 2021, Issue #4, pp. 266-279
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This paper examines the impact of family ownership, management, and generations on IPO underpricing and the long-run performance of publicly listed firms in Indonesia from 2004 to 2015. This study is based on agency theory, which discusses the relationship between shareholders and management, as well as controlling and non-controlling shareholders. Study results show that IPO underpricing was 28% higher for family firms than non-family firms. Among family firms, a family member’s presence as a Chief Executive Officer (CEO) significantly reduced the level of IPO underpricing. A negative relationship between family CEO and IPO underpricing was only observed if a CEO at the time of IPO was the founder instead of family descendants. A long-run return of family-firm IPOs was more likely to underperform their non-family-firm counterparts. The findings in the primary market suggest that investors predict bigger issues of agency conflicts between controlling and non-controlling shareholders in family firms than the issues of agency conflicts between shareholders and management in non-family firms. Since investors consider family-firm IPOs to be riskier than non-family firms, they demand a higher level of IPO underpricing to compensate for such risks. The results in the secondary market confirm the findings in the primary market.

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    • Table 1. Number of IPOs in Indonesia (2004–2015)
    • Table 2. Description of variables
    • Table 3. Descriptive statistics of variables
    • Table 4. Effect of family ownership on IPO underpricing
    • Table 5. Effect of family involvement and family generations on IPO underpricing
    • Table 6. Effect of family ownership on IPO long-run performance
    • Table 7. Effect of family involvement on IPO long-run performance
    • Conceptualization
      Lukas Setia-Atmaja
    • Data curation
      Lukas Setia-Atmaja
    • Formal Analysis
      Lukas Setia-Atmaja, Yane Chandera
    • Methodology
      Lukas Setia-Atmaja
    • Supervision
      Lukas Setia-Atmaja
    • Validation
      Lukas Setia-Atmaja
    • Writing – original draft
      Lukas Setia-Atmaja, Yane Chandera
    • Writing – review & editing
      Lukas Setia-Atmaja, Yane Chandera
    • Project administration
      Yane Chandera
    • Visualization
      Yane Chandera