Disclosure of Risk Factors on Prospectus and Initial Public Offerings (IPO) Performance: Evidence from Indonesia

  • Randy Kuswanto Accounting Program, Wiyatamandala School of Business, Indonesia


The purpose of this study is to investigate how risk information disclosed in prospectus influences the initial returns of initial public offerings (IPOs) in Indonesia. This study collected 62 sample IPOs offered in the Indonesian Stock Exchange from 2017–2018. Ordinary least squares was performed to test the association between risk disclosure and initial returns. Results indicate that prospectus provides risk information associated with initial returns. Both qualitative and quantitative dimensions have a significant negative impact on the initial returns. It can be concluded that risk information has an important role in the underpricing phenomenon. The study has extended the available literature by investigating risk disclosure from a dual perspective. Moreover, qualitative and quantitative assessments both have a direct impact on the initial returns and must be considered in investment decision making.

Keywords: Risk, IPO, underpricing, initial returns


Download data is not yet available.


Ameer, R., & Othman, R. (2009). Market risk disclosure: evidence from Malaysian listed firms. Journal of Financial Regulation and Compliance, 17(1), 57-69. doi:10.1108/13581980910934045

Auliya, R., & Januarti, I. (2015). Pengaruh Mekanisme Corporate Governance Terhadap Tingkat Underpricing IPO. Diponegoro Journal of Accounting, 4(4).

Brobert, G. (2016). The global REIT market: initial-day performance of IPOs. Journal of European Real Estate Research, 9(3), 231-249. doi:10.1108/JERER-03-2016-0015

Chen, C., & Wang, X. (2016). The impact of the reputation of underwriter and sponsoring representative on IPO underwriting fees. China Finance Review International, 6(4), 342-366. doi:10.1108/CFRI-07-2015-0109

Chhabra, S., Kiran, R., & Sah, A. N. (2017). Information asymmetry leads to underpricing: validation through SEM for Indian IPOs. Program, 51(2), 116-131. doi:10.1108/PROG-01-2016-0009

Colak, G. (2012). IPO characteristics of index firms. Managerial Finance, 38(12), 1134-1159. doi:10.1108/03074351211271265

Cordazzo, M., Papa, M., & Rossi, P. (2017). The interaction between mandatory and voluntary risk disclosure: a comparative study. Managerial Auditing Journal, 32(7), 682-714. doi:10.1108/MAJ-01-2016-1308

Craig, R., Lima Rodrigues, L., & Oliveira, J. (2011). Risk‐related disclosures by non‐finance companies: Portuguese practices and disclosure characteristics. Managerial Auditing Journal, 26(9), 817-839.
Dicle, M. F., & Abdou, K. (2007). Do risk factors matter in the IPO valuation? Journal of Financial Regulation and Compliance, 15(1), 63-89. doi:10.1108/13581980710726796

Dimovski, B. (2016). Differences in underpricing of A-REIT IPOs and Australian property company IPOs. Journal of Property Investment & Finance, 34(2), 107-115. doi:10.1108/JPIF-06-2015-0041

Gomez-Bezares, F., Alcaniz, L., & Ugarte, J. V. (2015). Firm characteristics and intellectual capital disclosure in IPO prospectuses. Academia Revista Latinoamericana de Administración, 28(4), 461-483. doi:10.1108/ARLA-09-2014-0134

Gunawan, R., & Darmadi, S. (2013). Underpricing, board structure, and ownership: An empirical examination of Indonesian IPO firms. Managerial Finance, 39(2), 181-200. doi:10.1108/03074351311294016

Jain, B. A. (2005). The Association Between Audit Quality and Post‐IPO Performance: A Survival Analysis Approach. Review of Accounting and Finance, 4(4), 50-75. doi:10.1108/eb043437

Jogiyanto. (2017). Teori Portofolio dan Analisis Investasi (11 ed.): BPFE.

Kim, H., & Yasuda, Y. (2017). Business risk disclosure and firm risk: Evidence from Japan. Research in International Business and Finance, 45, 413-426.

Murugesu, J., & Santhapparaj, A. S. (2010). Impact of risk disclosure in the prospectus on valuation and initial returns of initial public offerings in Malaysia. IUP Journal of Applied Finance, 16(6), 30-53.

Ozdemir, O., & Kizildag, M. (2017). Does franchising matter on IPO performance?: An examination of underpricing and post-IPO performance. International Journal of Contemporary Hospitality Management, 29(10), 2535-2555. doi:10.1108/IJCHM-11-2015-0662

Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15(1-2), 187-212.
Shabrina, K. K. N. (2013). Pengaruh Kualitas Audit Terhadap Kemampuan Investor Memprediksi Laba di Masa Depan. Diponegoro Journal of Accounting, 2(3), 1-12.

Shukor, Z. A., Mohamed, Z. M., Ahmad, A., & Abdullah, M. (2015). Risk management disclosure: A study on the effect of voluntary risk management disclosure toward firm value. Journal of Applied Accounting Research, 16(3), 400-432. doi:10.1108/JAAR-10-2014-0106

Wang, Y., Li, G., Li, J., & Zhu, X. (2018). Comprehensive identification of operational risk factors based on textual risk disclosures. Procedia Computer Science, 139, 136-143. doi:https://doi.org/10.1016/j.procs.2018.10.229

Wasiuzzaman, S., Yong, F. L. K., Sundarasen, S. D. D., Othman, N. S., & Wasiuzzaman, S. (2018). Impact of disclosure of risk factors on the initial returns of initial public offerings (IPOs). Accounting Research Journal, 31(1), 46-62. doi:10.1108/ARJ-09-2016-0122

Xu, Z.-J., Wang, L., & Long, J. (2017). The impact of director’s heterogeneity on IPO underpricing. Chinese Management Studies, 11(2), 230-247. doi:10.1108/CMS-05-2016-0095

Yan, Y., Xiong, X., Meng, J. G., & Zou, G. (2018). Uncertainty and IPO initial returns: Evidence from the Tone Analysis of China’s IPO Prospectuses. Pacific-Basin Finance Journal. doi:https://doi.org/10.1016/j.pacfin.2018.10.004
How to Cite
KUSWANTO, Randy. Disclosure of Risk Factors on Prospectus and Initial Public Offerings (IPO) Performance: Evidence from Indonesia. Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 15, n. 1, p. 15-22, jan. 2020. ISSN 2303-1018. Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/49231>. Date accessed: 07 june 2023. doi: https://doi.org/10.24843/JIAB.2020.v15.i01.p02.