International Journal of Administrative Science & Organization, May 2014 Volume 21, Number 2

Bisnis & Birokrasi, Jurnal Ilmu Administrasi dan Organisasi

The Influence of Corporate Governance Structure

towards Underpricing

ARIF WAHYU HIDAYAT AND RETNO KUSUMASTUTI

Division of Export Product Foreign Exchange, Department of Management and Financial Statement Compliance--
Bank of Indonesia, Indonesia
rekusuma@yahoo.com

Abstract. This study aims to analyze the influence of corporate governance structure on underpricing when firms perform
an Initial Public Offering (IPO). This study is based on the signaling theory, stating that the existence of proper corporate
governance structure at the time the firm conducting IPO will give the firm a high quality signal to potential investors.
The corporate governance structure tested includes the size of Board of Commissioners (BOC), the level of independence
of the Board of Commissioners, and the existence of an audit committee. The hypothesis testing is done using a multiple
regression model with a sample of 95 observations from firms doing IPOs listed on the Indonesia Stock Exchange during
the period of 2005-2012. The results of this study provide empirical evidence that: (1) the size of Board of Commissioners
is negatively correlated and affects underpricing, (2) the level of independence of the Board of Commissioners has no effect
on underpricing, (3) the existence of an audit committee has no effect on underpricing, (4 ) corporate governance structure
(the BOC size, the independence of the Board of Commissioners, and the existence of audit committees) simultaneously has
a positive and significant correlation to underpricing.

Keywords: audit committee, board of commissioners, board independence, corporate governance, underpricing

Abstrak. Penelitian ini bertujuan untukmenganalisis pengaruhstruktur corporate governance terhadap underpricing pada
saat perusahaan melakukan Initial Public Offering (IPO). Penelitian ini didasarkan pada teori sinyal (signaling theory)
yang menyatakan bahwa keberadaan struktur corporate governance yang baik pada saat perusahaan melakukan IPO akan
memberikan sinyal kualitas perusahaan yang tinggi kepada investor potensial. Struktur corporate governance yang diuji
meliputi jumlah anggota dewan komisaris, tingkat independensi dari dewan komisaris, dan keberadaan komite audit. Pengujian
hipotesis dilakukan menggunakan model regresi berganda dengan sampel 95 observasi dari perusahaan yang melakukan
IPO yang tercatat di Bursa Efek Indonesia selama periode 2005-2012. Hasil penelitian ini memberikan bukti empiris bahwa:
(1) jumlah anggota dewan komisaris berkorelasi negatif dan berpengaruh terhadap underpricing, (2) tingkat independensi
dari dewan komisaris tidak memiliki pengaruh terhadap underpricing, (3) keberadaan komite audit tidak memiliki pengaruh
terhadap underpricing, (4) struktur corporate governance (jumlah anggota dewan komisaris, independensi dewan komisaris,
dan keberadaan komite adit) secara simultan memiliki korelasi positif dan signifikan terhadap underpricing.

Kata kunci: corporate governance, dewan komisaris, independensi dewan komisaris, komite audit, underpricing

INTRODUCTION The basis of signaling theory is a good firm can

Initial Public Offering (IPO) is an activity of a firm
to seek additional funds for development or for business
expansion of the firm (Caselli, 2010). At the time of initial
public offering (IPO), the firm has private information
about the firm’s future prospects, while potential investors
have little information about it. Firms need to use a suitable
mechanism to overcome the information asymmetry.
According to Akerlof (1970), investors will evaluate all
firms doing an IPO based on the average value. As a result
of this assessment, the firm with a higher value than the
average will withdraw from the market, and the average
remaining firms, deciding to keep seeking funding (IPO),
will fall. This process will continue until the firm with
the lowest value is left in the market. To overcome this,
the signaling perspective states that firms with a higher
value (than the average value) are motivated to find a
mechanism to communicate the private information of
the firm that can be trusted to potential investors.
provide a signal of the firm’s condition by conducting
an underpricing IPO determination. The underpricing
phenomenon in IPO occurs when the secondary price
during IPO is significantly lower than during traded in
the secondary market. As proposed by Kusumawati and
Sudento (2005) This phenomenon also occurs in almost
every country in the world. In Indonesia alone, the level
of underpricing found relatively lower compared to some
developed and developing countries, as has been found
by Prastiwi and Kusuma (2001), Ernyan and Husnan
(2002), and Ali and Jogiyanto (2003).
According to Leland and Pylc (1977), a rational investor
would account for the ownership part of the former owner
of the shares; it becomes a valuable signal that can reflect
the value of the firm. The decrease in the proportion of
shareholding of the old owners indicated by the supply
of new shares to outside investors is a negative signal.
Conversely, the higher the percentage of shares retained
by the previous owner is a positive signal for the market.
 HIDAYAT AND KUSUMASTUTI, THE INFLUENCE OF CORPORATE GOVERNANCE
Jogiyanto (2000) adds that the information published as
an announcement will give a signal to investors in making
investment decisions. If the announcement contains a
positive value, it is expected that the market will react
at the time the announcement is received by the market.
Another characteristic is that the given signal must be
expensive and difficult to be replicated by other firms
doing a low quality IPO. Firms performing IPO set an
underpriced stock to give a signal that their firms are
high-quality (Yatim, 2011).
Existing studies widely use signaling theory to show
this dilemma of information asymmetry (Akerlof, 1970).
Signaling theory states that some indicators provide
signals to potential investors about the firm’s ability to
do IPO as well as the possibility of the future value of
the firm. Previous research reports stated that a reliable
communication explaining important information at the
time the firm conducts an IPO can reduce information
asymmetry between IPO issuer and investors. The
basic idea of this study is when a firm conduct initial
public offering, where there is no alternative sources of
information, the IPO assessment by investors will depend
on the net assets and income of the firm, as well as the
cash flow from the asset. The firm’s prospectus, issued
by the company at the time of IPO, contains information
about the assets, sources of income, the economic outlook,
and investment planning. In order to add to the credibility
of the main parameters assessment, the firm will create
a strategy and show the data that gives a signal on the
private information of the firm to potential investors.
Furthermore, Rock in Susanto (2007) also states that
the information asymmetry can occur between groups
of informed and uninformed investors. The investors
with better information will buy the IPO shares if it will
later generate a return; while investors with information
only from the prospectus of issuer firms will buy stocks
at random, both overpriced and underpriced shares. As
a result, the uninformed group would obtain a greater
proportion of ownership on the overpriced shares and
leave the primary market since they suffer significant
losses. Information asymmetry is when managers have
better information on the condition or prospects of the firm
than investors (Brigham and Houston, 2001). According
to Bodie et al. (2009) information asymmetry allows an
investor to have a private information on the value of a
security unknown by other parties. Through information
asymmetry, investors can get returns by buying shares
when underpriced and sell them when overpriced.
If private information indicates an overpriced stock,
investors will decide to sell it. An occurring information
asymmetry can lead to agency problem (Susanto, 2007).
According to agency theory, the shareholders
(principals) hire agent (manager) to manage the firm’s
resources effectively and efficiently to generate profit and
maintain the sustainability of the firm. Conflicts of interest
often occur between the principal and agent, commonly
called the agency problem; where the agent is not acting
in accordance with the interests of the principal so that
it will affect the performance of the firm. The existence
of agency problems may hinder the achievement of firm
goals, i.e. to increase the value of the firm. To overcome
these problems, we need a mechanism called corporate
91
governance (Jensen and Meckling, 1976). Tjager et al.
(2003) state that the term corporate governance was first
introduced by the Cadbury Committee in 1992 in a report
known as the Cadbury Report. In its development, there
are various definitions of corporate governance, both
based on the shareholding theory and stakeholding theory.
Sulistyanto (2003) gives a positive indication of the
influence of good corporate governance implementation
on the public trust. This is because the firm managed
more professionally can improve the welfare of its
owners or shareholders without ignoring the interests
of its stakeholders so that it will improve the positive
expectations of society on the firm implementing good
corporate governance. The role of corporate governance
in addressing agency problems is through monitoring both
internally and externally (Jensen and Meckling, 1976 ;
Saragih, 2012). In this case, corporate governance is a set
of rules governing the relationship between shareholders,
management (managers) of the company, creditors,
government, employees and other internal and external
stakeholders, relating to their rights and obligations, or in
other words a system that regulates and controls the firm.
According to Barnhart and Rosenstein (1998),
corporate governance mechanism includes internal
mechanisms, such as the structure of the Board of
Directors (BOD), managerial ownership and executive
compensation, and external mechanisms, such as the
market for corporate control, institutional ownership and
the level of debt financing. Corporate governance provide
effective protection for shareholders and creditors so that
they believe they will earn a return on their investment.
Corporate governance also help create a conducive
environment for an efficient and sustainable growth
of the corporate sector (FCGI, 2003 in Nasution and
Setiawan, 2007). The discussion on this research focuses
on the influence of corporate governance structure on
underpricing. The role of corporate governance structure
is measured by the board size , board independence and
audit committee.
In the current era of globalization, corporate governance
is one of the important determinants for the growth,
development and success of a firm. The global economic
crisis, not to mention in Asia countries a few years ago,
is one of the results of the weak implementation of good
corporate governance. Sarra (2003) revealed that the
governance of the firm management is a structure made
by the firm to increase capital with low costs, to leverage
assets efficiently, and to have reliable employees so as to
reduce the agency cost. There are two things that must
be considered in the concept of corporate governance:
First, the importance of the shareholders to acquire their
rights to obtain information that is correct and timely.
Second, the obligations of the firm for an accurate, timely,
and transparent disclosure to all information the firm’s
performance, ownership, and stakeholders (Kaihatu,
2006). The signal of corporate governance structure can
be explained from the size of the Board of Commissioners,
the level of independence of the Board of Commissioners,
and the existence of an audit committee (MNIF, 2009).
The Board of Directors (in Indonesia is better known
as the Board of Commissioners) is one of the firm organs
in charge to supervise and provide advice to the directors
92 International Journal of Administrative Science & Organization, May 2014
Bisnis & Birokrasi, Jurnal Ilmu Administrasi dan Organisasi
as well as ensure that the company has implemented
corporate governance well. The Board of Commissioners
is the core of corporate governance, assigned to ensure
the implementation of corporate strategy, oversee the
management, as well as require the implementation of
accountability (Zehnder, 2000). Hermalin and Weisbach
(2003) find evidence that the board with a smaller
number of members would be more effective than the
board with a greater size. The influence of board size on
the firm performance is proposed by Fama and Jensen
(1993) stating that the small board size is the result of
technological and organizational changes that can reduce
costs and firm downsizing. Xie et al. (2001) suggested that
a small board size will be less burdened by bureaucratic
problems thus can be more functional.
The effectiveness of the board to limit the occurrence
of earnings management in financial reporting depends
on the independence of its members. Beasley (1996)
in his study provides evidence that the presence of
independent directors will reduce the level of fraud in
financial reporting. A member of the board cannot be
considered independent if he has been working on the
firm over 5 years (Kim et al., 2010). Chtouru et al. (2001)
have three characteristics about the board independence,
i.e. the presence of independent directors on a board,
the separation between the chairman of the board with
the CEO, and the existence of an independent national
committee. Furthermore, Fama and Jensen (1983)
stressed the importance of outside board members in
exercising the function of controlling board decisions.
The independence from managerial influence makes
the outside directors in a better position to protect the
interests of shareholders from opportunistic actions of the
management. External directors can better perform their
task to monitor the firm effectively since it has a smaller
probability to collude with the managers to influence the
welfare of the shareholders (Dhaliwal, 2007). A similar
statement is expressed by Kim et al. (2010) stating that
shareholders and regulators believe that the independent
directors will be more effective in evaluating management
performance. Academic research also supports this
statement with the conclusion that when a firm’s
performance declines, only the independent directors dare
to dismiss the CEO accessed to be ineffective in running
the firm.
Meanwhile, the audit committee has the authority to
access records or information concerning employees,
funds, assets and other resources of the firm associated
with the performance of its duties. The audit committee has
an important role in the corporate governance structure,
in terms of preparation of quality financial statements.
Good audit committee must have certain characteristics
in order to create a better corporate governance; Dhaliwal
et al. (2007) suggests three characteristics, i.e. the audit
committee has a minimum of three members; there is
an independent board member in the audit committee;
it meets at least four times a year. Hrichi (2009)
focused his research on three characteristics considered
important in improving corporate governance, namely the
independence of the audit committee, the expertise of the
audit committee members, and the meeting frequency of
the audit committee members.
Volume 21, Number 2
Accordingly, do the size of Commissioners Board, its
level of independence, as well as the existence of an audit
committee influence the underpricing at the time of IPO?
The aim of this research is to analyze the influence of the
board size, its level of independence, and the existence of
an audit committee on underpricing, as well as analyze
the influence of the corporate governance structure.
RESEARCH METHODS
This study uses a quantitative approach and the aim
of the research is explanatory. The data used are cross-
sectional data. The samples are firms performing initial
public offering (IPO) during the period of 2005-2012. The
selection of research period starting in 2005 is founded
upon Bappepam-LK decision (now the Financial Services
Authority/OJK) who implemented strategies to improve
corporate governance in Indonesia by making the Indonesian
Capital Market Master Plan 2005-2009. The data used are
the quantitative data from the firms’ prospectus. The data
are analyzed regressively with reference to the stages of
classical assumption testing
.............(1)
Description:
IR : Initial return
Pt0 : IPO price
Pt1 : closing price on the first day of secondary market
In this study, the independent variables include
the size of the Board of Commissioners (BSIZE), the
percentage of independent board of commissioners in the
board structure (INDEAD), and the existence of an audit
committee at the time of IPO (AC). The three variables
are part of the corporate governance structure. Another
independent variable is the variable of the firm’s life span
from its initial establishment to the IPO (AGE), firm size
(FSIZE), and the firm’s debt ratio or leverage (LEV) as
the controlling variable. While the dependent variable
in this study is the level of underpricing (UNDPRIC),
measured by the initial return, i.e. the difference between
the closing price on the secondary market divided by the
offering price multiplied by 100% (Suyatmin and Sujadi ,
2006). The model used in this study refers to Anis (2009).
UNDPRIC = β0 + β1BSIZE + β2INDEAD +
β3AC + β5AGE + β4FSIZE + β6LEV + ε...(2)
Description:
UNDPRIC : underpricing level measured by (P1-
P0)/P1; where P1 is the closing price
on the first day of IPO, while P0 is
offering price.
BSIZE : the board size
INDEAD : the number of independent commissioners
in the board
 HIDAYAT AND KUSUMASTUTI, THE INFLUENCE OF CORPORATE GOVERNANCE 93

AC : Audit committee, measured by using Table 1. Sample Selection

dummy variable (1.0) with the value Stage Description Total
of 1 if the firm has an audit committee
coming during IPO, and 0 if vice versa. 1 Firms doing IPO in Indonesia Stick 146
Exchange in the period of 2005-2012
AG : the difference between the year of the
firm establishment and the year of the 2 Firms without underpricing (35)
IPO 3 Firms in financial sector (16)
FSIZE : firm size 4 Research samples 95
LEV : the firm’s debt ratio
Table 2. Descriptive Statistics
Anis (2009) shows that the board size has a significant
positive effect on the level of underpricing. Meanwhile, Variable Mean Median Modus Max. Min. Std. Dev.
Salim Darmadi and Randy Gunawan (2012) explain UP 0.210595 0.191964 0.411764 0.441860 0.012987 0.133838
that the board size variable has a significant negative BSIZE 3.787234 3.000000 3.000000 10.00000 2.000000 1.605584
relationship with underpricing, indirectly a larger board
INDEAD 0.383143 1.000000 0.333333 0.666667 0.000000 0.104705
is expected to reduce information asymmetry between
the firm conducting IPO and potential new investors. AC 0.351064 0.000000 0.000000 1.000000 0.000000 0.479862

Then Mak et al. (2003) describes that the influence of AGE 16.62411 14.79167 5.916667 106.0833 0.000000 14.76039

corporate governance on stock price at the time of IPO
indicates that the board size has a negative correlation to
the premium stock price and premium market price. Thus,
H1 is the board size has a negative effect on underpricing.
Furthermore, the independence level of the board of
commissioners (board independence) has a significant
negative effect on the magnitude of underpricing (Anis,
2009), also in line with Salim Darmadi and Randy
Gunawan (2012) affirming that significantly the board
independence is negatively correlated to the level of
underpricing. Furthermore, the audit committee is a
component of the corporate governance structure to
create a signal to investors on the quality of a firm and
the information contained in the prospectus. In line with
H1, H2 is the board independence have a negative effect
on underpricing. Finally, referring to Bedard et al. (2008)
the presence of the audit committee significantly affects
the decrease in underpricing level during the firm’s IPO.
Thus, H3 is the audit committee has a significant negative
effect on underpricing
RESULT AND DISCUSSION
The samples used in this study are firms doing IPO in
Indonesia Stock Exchange in 2005-2012 period. Based on
the existing data, the number of firms that became samples
are 95 firms.
Table 2 explains the descriptive statistics from the
dependent variable of underpricing from the firm samples
doing IPO in the periode of 2005-2012.
Based on Table 2, the average variable value of
underpricing (UP) is equal to 0.210595. This shows that
the average underpricing in this study is 21.06%, in other
words the average stock price of the firms taken as samples
at the time of IPO increased by 21.06% from the closing
price on the first day of IPO. The table also indicates that
the level of underpricing occurred in the sample firms is
between 1.29% to 44.19%. This result indicates that the
underpricing level of research samples is lower compared
to the research conducted by Salim and Randy (2012)
conducted in Indonesia from 2003 to 2011 with a maximum
value of underpricing (initial return) of 70%. The average
FSIZE 3.16E+12 7.47E+11 - 7.09E+13 2.32E+10 1.20E+13
LEV 0.608368 0.618100 0.569400 1.839500 0.063700 0.242699
value of board size (BSIZE) is 3.78 or equal to 4. This
shows that the average number of board members at the
sample firms is 4 people, consisting of, the data obtained
showed, independent and dependent commissioners.
INDEAD variable is independence board level in a firm
measured by the percentage of independent commissioners
on the number of Commissioners Board. The independence
of the Commissioners Board shows the effectiveness of the
board in performing the task of monitoring and evaluating
the performance of management. The average value of the
board independence is 0.383143, or 38.31%, which means
that the average proportion of independent commissioners
in a firm is 38.31% of the total number of commissioners.
Variable of audit committee (AC) is a dummy variable
with the criteria if the firm has an audit committee during
the IPO, it will be given a value of one (1), and zero (0) if
the other way around. AC variable has an average value of
0.35 meaning that as many as 35% of firms have an audit
committee, while the remaining 65% firms do not have
an audit committee in their corporate leadership structure
during the IPO.
Referring to conducted sample selection, this study uses
95 firms as sample criteria. After the model statistical test
consisting of partial significance test (Test T), simultaneous
significance test (Test F), and the model relevance test or
the coefficient of determination (R2), the result of data
processing can be seen in Table 3.
Based on Table 3 it can be seen that the value of R2 is 0.170.
This means that the underpricing variable can be explained
by the variations of independent variable, namely the board
size, the independence of the board of commissioners,
audit committee, firm life span, firm size, and the leverage
of 17% while the remaining 83% is explained by other
factors not included in the study. Furthermore, the value of
Adjusted R2 in this study shows an indication of the need
for additional independent variables, shown by the smaller
value of Adjusted R2 than the value of R2. Moreover,
the t statistic test is used to show how significant is the
94 International Journal of Administrative Science & Organization, May 2014 Volume 21, Number 2
Bisnis & Birokrasi, Jurnal Ilmu Administrasi dan Organisasi

Table 3. The Result of the Model Regression of the Research as part of the corporate governance structure has a negative
Std.
correlation to the premium stock offering price and the
Variable Coeficient t-Stat Prob. premium market price, meaning that the greater the board
Error
size, stock price at the time of the IPO tends to be low, hence
BSIZE -0.02627 0.00863 -3.04327 0.0031** the higher the level of underpricing.
INDEAD -0.18081 0.136743 -1.32229 0.1895 INDEAD variable shows the t-stat value of -1.322
with a probability value of 0.189, meaning that INDEAD
AC 0.023339 0.028718 0.812718 0.4186
variable has a negative correlation and no significant effect.
AGE 0.000282 0.000942 0.298922 0.7657 Thus the result does not support the research hypothesis
FSIZE 4.37E-16 1.68E-15 0.259966 0.7955
of H2, meaning that the independence of the Board of
Commissioners has no effect on the underpricing of firms
LEV -0.12099 0.054419 -2.2233 0.0288* doing IPO. This indicates that the independence level
C 0.438696 0.069195 6.339984 0 of the commissioners board, functioning to control of
the board of commissioners’ decision, is not capable to
R-squared 0.170137
control opportunistic actions of corporate management.
Adjusted R- The independence of commissioners board cannot explain
0.112905
squared the firm’s ability to reduce the level of fraud in financial
F-statistic
reporting. In the descriptive analysis, it can be seen that the
2.972767
minimum value of INDEAD variable explaining the board
Prob(F-statistic) 0.010917* independence is 0, while the maximum value is 66.7%. It
Note: * and ** show significance level at 5% and 1% means that there are still firms without independent Board
of Commissioners during the IPO. This result is also
confirmed by Yatim (2011) who conducted a research on
influence of an individual or partial independent variables the Malaysian Stock Market from 1999 to 2008. The study
on explaining the effect of the dependent variables. At the did not find any influence of the board independence on
t test, the significant level is in 1%, and 5% depending on underpricing. This may indicate that investors believe that
probability value at t-stat. the firms newly doing IPO will run better if led by the old
Based on the regression results in Table 3 it can be seen board of commissioners old who really understand the
that the t-stat value for variable of BSIZE is -3,043 with condition and growth of the firm very well, compared to
probability value of 0.003, meaning that BSIZE variable has entrusting it to the board independence (Yatim, 2011).
a negative coefficient on underpricing and has a significant This result is contrary to the research conducted by Anis
influence on α = 1%. It can be concluded that the results of (2009), finding that independent directors have a significant
this study support the research hypothesis of H1, meaning negative effect on underpricing. The board independence
that the board size has a negative effect on underpricing, of a firm gives a signal that the firm has implemented the
so that the greater the number of commissioners, the corporate governance system well. Accordingly, potential
smaller the level of underpricing will be. This means the investors will increasingly believe the credibility of the
board size may help reduce the information asymmetry financial statements contained in the prospectus so as to
in the eyes of investors. The negative correlation shown reduce investors’ sense of distrust and ultimately reduce the
between the board size and underpricing indicates that the underpricing.
greater the board size, each person in the commissioners Furthermore, in Table 3 we can also see that the t-stat
will contribute differently due to different backgrounds; value for AC variable is 0.813 with the probability value
thus in this case the benefits received by the board of of 0.419, meaning that the variable AC has a positive
commissioners will be greater. In addition, the large size correlation and does not have a significant effect on the α =
of the board can be more effective in increasing the role 5%. These results do not support the research hypothesis of
of corporate governance structure in the firm; it can reduce H3, meaning that the existence of an audit committee does
the information asymmetry occurring between the firm and not have an influence on the underpricing of firms doing an
IPO. The result is in line with Anis (2009), finding that the
investors, so that the level of underpricing will be smaller.
audit committee in firms doing an IPO does not significantly
This is in line with the proposition of Xie et al. (2001)
influence underpricing. The audit committee cannot be used
related to profit management stating that the large board size as a signal that the firm has run its monitoring function well,
tends to have independent directors more experienced in where such is very useful for the firms to convince investors
the field of finance. Thus, a greater board size can be better to purchase their stock offering. This may be caused by
in preventing the occurrence of profit management by the the many firms in Indonesia that are still less aware of the
firm. Similarly research by Anis (2009) and Hearn (2011) importance of good corporate governance in a firm. The still
also show the board size has a significant coefficient of worse implementation of corporate governance system is
negative effect on the of underpricing. Xie et al. (2001) also seen in the entire research samples: 60.36% firms do not have
found that board size has a significant negative influence an audit committee when performing IPO in 2005-2012.
on underpricing. These results indicate that the number The analysis result is contrary to the research conducted by
of board members can help reduce the level of corporate Bedard et al. (2008), finding that an audit committee can be
information asymmetry. The board size can be used as a tool used as a signaling strategy for the firm with independent
to measure the ability of coordination and communication audit-committee members and their competence in the field
of the board. An empirical research conducted previously of finance. This can have a significant effect on reducing the
by Mak et al. (2003) also gives the result that the board size underpricing during the IPO.
 HIDAYAT AND KUSUMASTUTI, THE INFLUENCE OF CORPORATE GOVERNANCE
In this study, the concept of corporate governance
structure can explain its influence on underpricing. Good
corporate governance is proven capable to explain and
influence underpricing, as well as capable to the firm’s
mechanism to reduce the information asymmetry for
potential investors.
CONCLUSION
The results of the research show that the size of
Commissioners Board influences the level of underpricing,
while the independence level of the board does not have a
significant effect on the level of underpricing. Meanwhile, the
existence of an audit committee does not have a significant
effect on underpricing. As a consequence, the firm can pay
more attention to the corporate governance structure as a way
to give a signal to investors and potential investors about the
firm’s performance. The greater number of commissioners
will give effect to the lower level of underpricing. It shows
that the board size can help reduce the level of corporate
information asymmetry. The number of commissioners can
be used as a tool to measure the ability of coordination and
communication. Investors and prospective investors can use
the results of this study to determine the signal given by the
firm regarding its performance.
Of the corporate governance structure described in this
study, investors may consider the board size in taking the
decision to invest in a firm doing an IPO. It refers to the
result that the greater number of commissioners will affect
the lower level of underpricing. In addition to investors,
the issue underwriters can use these results to determine
the reasonable initial public offering price. Furthermore,
the regulator as the policy makers regarding the corporate
governance implementation in Indonesia is expected to use
the results of this study as an input for setting the policy on
corporate governance in Indonesia so that its implementation
can run well. Financial Services Authority (OJK) may further
monitor the number of commissioners in a firm, as well as
create regulations on the composition of the Commissioners
Board members of a firm doing an IPO in order to ensure the
implementation of good corporate governance in Indonesia.
The results of this study can contribute to academia and
science concerning the influence of corporate governance
structure on the underpricing level of a firm. The good and
effective corporate governance implementation can reduce
the information asymmetry, hence reducing the level of
underpricing. Therefore, this study is expected to add to the
literature for academicians regarding the good corporate
governance implementation in Indonesia, particularly in
terms of its influence on the level of underpricing. This study,
nevertheless, has some limitations; it is expected, therefore,
that further research may use longer intervals period so it can
get a more comprehensive picture on the effect of variables
used in a better and consistent manner. Future studies could
also use another measurement often used for the level of
underpricing, like abnormal return.
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