PRESTIGIOUS UNDERWRITERS AND SHARE PERFORMANCE IN JAKARTA STOCK EXCHANGE

Abstract

Under pricing is a puzzle in the IPO process whereas underwriter's reputation is one of the contributed factors. Prestigious underwriters could help investors in reducing uncertainty about the real value of the IPO firms. This study aims to examine existence of negative relationship between underwriter's reputation and underpricing level at Jakarta Stock Exchange (JSX) during 1995 - 2004. Underwriter;s reputation is measured using Caster and Manaster method (CM) and Megginson-Weiss method (MW), while underpricing is represented by Raw Returns and Price Run-up of the stock. Negative relationship found at group of IPOs led by reputable underwriters using CM method. Employing MW rank method, for reputable and less reputable group of underwriters, that relationship is not found. Non-parametric correlation test shows that there was no significant correlation exists between reputation and underpricing. Thus leads to conclusion that underwriter reputation does not convey positive signals to investors in JSX to reduce uncertainty except for group of IPOs led by above the mean underwriters using CM rank method.