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“The impact of risk factor disclosure on the initial return of IPO companies
amidst a pandemic”
AUTH ORS
Ghazali Syamni
Rafidah Othman
Murhaban Murhaban
Rico Nur Ilham
Muhammad Rizal
M. Shabri Abd. Majid
ARTICLE INFO
Ghazali Syamni, Rafidah Othman, Murhaban Murhaban, Rico Nur Ilham,
Muhammad Rizal and M. Shabri Abd. Majid (2024). The impact of risk factor
disclosure on the initial return of IPO companies amidst a pandemic. Investment
Management and Financial Innovations, 21(4), 1-10.
doi:10.21511/imfi.21(4).2024.01
DOI http://dx.doi.org/10.21511/imfi.21(4).2024.01
RELEASED ON Tuesday, 01 October 2024
RECE IVED ON Thursday, 20 June 2024
ACCEPTED ON Thursday, 12 September 2024
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ISSN PRINT 1810-4967
ISSN ONLINE 1812-9358
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© The author(s) 2024. This publication is an open access article.
businessperspectives.org
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Investment Management and Financial Innovations, Volume 21, Issue 4, 2024
http://dx.doi.org/10.21511/im.21(4).2024.01
Abstract
e capital market has increasingly become a pivotal avenue for enterprises seeking ad-
ditional capital for expansion or operational enhancements. In raising funds through
an Initial Public Oering (IPO), the company must publish its risk disclosure in the
prospectus. erefore, this study aims to investigate the impact of risk disclosure on
the initial return of Indonesian companies undergoing IPOs during the pandemic.
Using data from 136 out of 164 companies that went public between 2020 and 2022,
sourced from the Indonesian Stock Exchange and company websites, the study em-
ploys the ordinary least squares method to estimate the impact of risk disclosures on
initial returns during the pandemic. e ndings reveal that external and overall risk
disclosures signicantly inuence IPO initial returns. Specically, Indonesian inves-
tors were particularly attentive to external and overall risks when evaluating IPOs dur-
ing the pandemic. is heightened concern suggests that comprehensive risk disclo-
sure can aect investor behavior and nancial outcomes for companies going public in
uncertain times, highlighting the importance of transparency in risk communication
to support investor decision-making and market stability.
Ghazali Syamni (Indonesia), Radah Othman (Malaysia),
Murhaban Murhaban (Indonesia), Rico Nur Ilham (Indonesia),
Muhammad Rizal (Indonesia), M. Shabri Abd. Majid (Indonesia)
The impact of risk factor The impact of risk factor
disclosure on the initial disclosure on the initial
return of IPO companies return of IPO companies
amidst a pandemicamidst a pandemic
Received on: 20 of June, 2024
Accepted on: 12 of September, 2024
Published on: 1 of October, 2024
INTRODUCTION
Capital markets have become crucial for companies seeking nancing,
including during extraordinary circumstances like the coronavirus
pandemic, with the Indonesian Stock Exchange (IDX) maintaining a
steady number of IPOs over the past ve years. is consistent IPO
activity underscores its role as a key funding method, helping compa-
nies access additional funds for working capital and debt repayment,
which drives business growth and protability, despite challenges like
competition and resource management.
Capital markets globally have become vital for companies in raising
funds either for business expansion or capital restructuring, especially
during extraordinary circumstances like the coronavirus pandemic.
Initial public oerings (IPOs) on the Indonesian Stock Exchange (IDX)
have remained steady over the past ve years, underscoring their role
as a key funding method for various business sectors. Companies that
go public can access additional funds for working capital and debt re-
payment, promoting business growth and protability despite chal-
lenges like competition and resource management. e government
mandates a prospectus for IPOs, detailing company proles, nancial
information, and risks. Still, in Indonesia, risk disclosure during IPOs
© Ghazali Syamni, Radah Othman,
Murhaban Murhaban, Rico Nur Ilham,
Muhammad Rizal, M. Shabri Abd.
Majid, 2024
Ghazali Syamni, Dr, Senior
Lecturer, Faculty of Economics and
Business, Management Department,
Malikussaleh University, Indonesia.
(Corresponding author)
Radah Othman, Dr, Senior Lecturer
& Head of MBA Program, Azman
Hashim International Business School,
Business Department, University of
Technology Malaysia, Malaysia.
Murhaban Murhaban, Dr, Senior
Lecturer, Faculty of Economics and
Business, Department of Accounting,
Malikussaleh University, Indonesia.
Rico Nur Ilham, Dr, Lecturer,
Economics and Business Faculty,
Department of Management,
Malikussaleh University Indonesia.
Muhammad Rizal, Dr, Senior Lecturer,
Faculty of Economics and Business,
Department of Management, Samudra
University, Indonesia.
M. Shabri Abd. Majid, Professor,
Faculty of Economics and Business,
Department of Islamic Economics,
Syiah Kuala University, Indonesia.
JEL Classication G11, G14, M13
Keywords risk, external, internal, return, IPO, pandemic, investor,
behavior
LLC “P “Business Perspectives”
Hryhorii Skovoroda lane, 10,
Sumy, 40022, Ukraine
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BUSINESS PERSPECTIVES
Conict of interest statement:
Author(s) reported no conict of interest
2
Investment Management and Financial Innovations, Volume 21, Issue 4, 2024
http://dx.doi.org/10.21511/im.21(4).2024.01
lacks specic guidelines, leading to inconsistent risk reporting and potentially undermining investor con-
dence. Developing clearer guidelines could enhance transparency, ensure uniform risk reporting, and
improve investor trust and market eciency. Additionally, the phenomenon of initial returns from IPOs,
driven by information asymmetry and investor behavior, remains an area of interest for researchers, high-
lighting the risks associated with information gaps, macroeconomic factors, and investor actions.
is research signicantly contributes to understanding the impact of risk disclosure on the initial re-
turn of IPOs. By demonstrating how the disclosure of risks, particularly external and overall risks, in-
uences IPO performance, the study oers valuable insights for corporate management in developing
more comprehensive risk disclosure documents. is information aids investors in making more in-
formed investment decisions and managing their expectations regarding new stocks. Additionally, the
novelty of research enriches nancial literature with a focus on the Indonesian capital market during
the pandemic and guides policymakers and market regulators in enhancing transparency and inves-
tor protection. Identifying risk factors that aect initial returns helps explain variations in IPO perfor-
mance and oers a foundation for future studies to explore additional inuential factors. e study’s
objective was to investigate the impact of risk disclosure on the initial return of companies undergoing
IPOs during the Indonesian pandemic, nding that external and overall risk disclosures signicantly
impacted initial returns. is suggests that greater transparency regarding these risks can inuence in-
vestor behavior and the nancial outcomes of companies going public during uncertain times, benet-
ing rms, policymakers, and investors alike.
1. LITERATURE REVIEW
e core idea of the information asymmetry theory
is that it explains why information imbalances or
non-transmissions occur among business operators
collectively. Knowledge asymmetry is a concept that
suggests some individuals possess specic knowl-
edge that is not available to everyone. e IPO en-
vironment has further highlighted dierences in
investor behavior due to varying degrees of infor-
mation asymmetry. is theory underscores the im-
portance of addressing information gaps to ensure a
more equitable and transparent investment environ-
ment (Wasiuzzaman et al., 2018; Yusup, 2022).
rough IPOs, investors’ underpricing and over-
pricing are caused by these disparities in infor-
mation levels. Underpricing shares are preferred
by investor groups with access to and processing
relevant information. en, because of a lack of
knowledge or because investors work with IPO
companies, groups of investors are compelled to
execute transactions with expected preferences,
which leads to mistakes in share selection owing
to overpricing (Ak & Makarova, 2021; Fulghieri
et al., 2020; Zou, Li, et al., 2020).
However, businesses holding IPOs are oen un-
certain about which investor groups are well-in-
formed and which are not. erefore, IPO rms
must provide armative details, such as those
from underwriters and audit institutions. Sharing
this information can enhance the rm’s reputa-
tion and serve as a signal to investors, encourag-
ing them to buy shares in the IPO company. is
approach is supported by signaling theory, which
explains how information asymmetries between
investors and IPO rms can inuence investor
behavior and market outcomes (Bernstein et al.,
2017; Liu et al., 2020; Tao-Schuchardt et al., 2023).
Signaling theory seeks to elucidate how informa-
tion leaks in various market environments, oering
a framework for understanding how information
is publicly conveyed. e theory provides valuable
guidelines for assessing the purpose, eectiveness,
and overall performance of signals within a rm.
By addressing and mitigating information asym-
metry related to the signaling object and ensuring
that information is accessible to all stakeholders,
signaling theory aims to enhance decision-mak-
ing processes. Researchers have highlighted that
signaling theory is particularly useful in explain-
ing information asymmetry in the stock evalua-
tion process by external parties, such as investors,
during an IPO. is perspective aligns with earlier
claims that signal theory eectively addresses the
information gaps encountered during IPO partici-
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pation, providing a comprehensive explanation for
the observed asymmetry in the market (Connelly
et al., 2011; Liu et al., 2020; Plummer et al., 2016;
Spence, 1974; Stiglitz, 2002; Svetek, 2022).
Initial return (IR) is a prevalent concept in the
context of Initial Public Oerings (IPOs). IR re-
fers to the method of tracking the price changes of
a company’s stock at the time of its IPO and dur-
ing the rst trading day following the public oer-
ing. is phenomenon has become a focal point
of interest for investors engaged in transactions
during the IPO period and for researchers study-
ing its impact across dierent global markets. e
signicance of IR lies in its ability to reect the
market’s initial reaction to a newly listed compa-
ny’s stock, providing insights into investor senti-
ment and market dynamics shortly aer the IPO
(Habib & Ljungqvist, 1998; Mehmood et al., 2021;
Yusup, 2022).
e initial return discussed is connected to the
theories of information asymmetry and signaling,
which consider various factors including the roles
of underwriters and investors. ese theories ap-
ply not only to regular IPOs but also suggest that
during a pandemic, abnormal returns can occur
on IPOs. is phenomenon has become a signi-
cant concern for investors active at the time, and it
has also drawn the attention of researchers study-
ing markets worldwide. is highlights the impor-
tance of understanding how information is dis-
tributed and perceived, especially under extraor-
dinary circumstances, and underscores the broad-
er implications for market behavior and investor
decision-making during such periods (İlbasmı,
2023; Jamaani & Alidarous, 2019; Mehmood et al.,
2021; Yusup, 2022; Cheng et al., 2020).
On the other hand, there is a prediction that dur-
ing IPOs, information about investors, profes-
sionals, and previous employees may be dispersed,
leading to the possibility of underpricing. is un-
derpricing occurs due to the dierence between
the IPO price and the market price at the end of
the period. is illustration indicates that the po-
tential for underpricing was rather high during
the IPOs, which enabled a signicant initial re-
turn and consequently encouraged the research-
ers to carry out further studies (Ak & Makarova,
2021; De Oliveira et al., 2023; Gupta et al., 2021).
Companies conducting an IPO are required to
submit a prospectus. One of the critical compo-
nents of the prospectus is the risk disclosure factor,
which is vital for company stakeholders, especially
investors. According to the research, companies
that utilize detailed risk disclosure factors (DRF)
have better opportunities to attract investors. e
risk disclosure factor highlights the types of risks,
company value, and degree of information asym-
metry, which can indicate a decrease in the com-
pany’s level of uncertainty. erefore, including
comprehensive risk disclosures in the prospectus
is crucial for enhancing investor condence and
ensuring a transparent investment environment.
(Campbell et al., 2014; Elghaar et al., 2019; Katti
et al., 2023; Lyle et al., 2023).
Risk disclosure is not only a bundle, but also clas-
sied into several types: internal risk factors (DRI),
external risk factors (DRE), and investment risk
factors (DRV) in a prospectus. An organization
faces internal risks due to internal factors, such as
management, personnel, and operations. External
risks, on the other hand, encompass information
beyond a company’s control, such as laws, poli-
cies, and economic climate cycles. Investment risk
pertains to potential risks faced by IPO sharehold-
ers, such as the possibility of withheld dividends,
IPO failure, or a reduction in ownership propor-
tion. e presence of risks is indicated by values 1
and 0, depending on whether the corresponding
risk items are identied or not. e extent of risk
disclosed in the prospectus issued during IPOs
determines the risk value (Gupta et al., 2021; R.
Handayani & P. Handayani, 2022; Wasiuzzaman
et al., 2018).
Previous research has demonstrated that risk dis-
closure aects the initial return of shares for rms
going public. Risk assessment of the company
should be carried out appropriately to provide in-
vestors with better information, potentially lead-
ing to anomalous returns during the short run
of the IPOs. Awareness of these risks serves as a
strategy for reducing unexpected events that in-
uence the initial return. In the Brazilian capital
market, further investigation into risk disclosure
as a source of information about initial returns
is necessary. is literature review employs pub-
lished papers from 2000 to 2019 to highlight the
existing relationship between risk exposure and
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initial returns in the short run (Albuquerque et al.,
2023; Grover et al., 2022; Grover & Bhullar, 2021;
Guo et al., 2017).
e research indicates that companies actively
pursuing threat management strategies can sig-
nicantly reduce their initial return. A study us-
ing data from 131 Indian IPO companies from
2011 to 2019 concluded that internal risk was sig-
nicantly lower than external risk. Further ex-
ploration of Indian markets found no correlation
between threat exposure and initial return, par-
ticularly concerning qualitative risk. Quantitative
risk exposure does not signicantly aect initial
return during IPOs. Additionally, the research
examining 96 Malaysian IPOs revealed that in-
vestment risk is most signicant for a company’s
initial return, whereas internal and external risk
exposure is less signicant (Filzen, 2015; Filzen
et al., 2023; Grover et al., 2022; Gupta et al., 2021;
Wasiuzzaman et al., 2018).
e research conducted on the Australian stock
market indicates that an increase in quantitative
risk does not signicantly aect the internal rate
of return during initial IPOs. However, an exami-
nation of data from 109 Indian IPO companies re-
vealed no relationship between risk disclosure and
initial return, specically regarding qualitative
risk. Similarly, a study in Indonesia, which covered
210 IPOs between 2011 and 2018, found that DRI
(Disclosure of Risk Information), DRE (Disclosure
of Risk Exposure), and DRV (Disclosure of Risk
Variables) had little to no eect on initial return.
Furthermore, using data from 290 IPOs between
1989 and 2005, it was concluded that these risk
disclosures did not signicantly inuence initial
returns. ese ndings suggest that the impact of
risk disclosure on initial returns may vary signi-
cantly across dierent markets and types of risks.
erefore, investors and policymakers must con-
sider market-specic factors and the nature of the
disclosed risks when assessing the potential ben-
ets of risk disclosure in IPOs (Ding, 2016; Gupta
et al., 2021; R. Handayani & P. Handayani, 2022).
Based on the information symmetry theory, sig-
naling theory, and several previous empirical
studies, the hypotheses proposed in this study are
as follows:
H1: e IR of IPOs inuenced by internal risk
disclosure.
H2: e IR of IPOs inuenced by external risk
disclosure
H3: e IR of IPOs inuenced by investment risk
disclosure.
H4: e IR of IPOs inuenced by overall risk
disclosure.
2. DATA SOURCES
AND METHODOLOGY
e data used in this study come from all com-
panies that go public on the Indonesian stock
market between 2020 and 2022 (the years of the
COVID-19 pandemic) without making a distinc-
tion between big and small businesses. Data are
accessed via the Indonesian capital market web-
site, www.idx.co.id, which provides access to all
IPO rm information. e study encompassed
164 companies that conducted initial public oer-
ings (IPOs) through the prospectus documenta-
tion that was cross-sectional by time. All research
data were obtained through the Indonesian Stock
Exchange website and each company’s website.
To gather 136 companies, the sampling technique
used was purposive sampling with certain criteria.
Based on the sample criteria above, 164 companies
Table 1. Sample criteria
Descripons criteria Tot al
The company will conduct an IPO in 2020-2022 164
It is not the same as an IPO overpricing company in 2020 -2022 18
It is not the same as an IPO steady company in 2020-2022 2
The company with the nancial statement cannot accessed 6
This does not company include IPOs that use foreign exchange 2
The number of samples used in research 136
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are conducting initial public oerings (IPOs). Due
to the use of purposive sampling, a few companies
could not be included in the study sample. ese
companies include 18 overpricing, 2 with stable
prices, 6 with no access to data, and 2 using for-
eign exchange. In other words, according to this
study’s ndings, 28 businesses were classied as
non-sampling and 136 businesses were classied
as sampling, or having an initial return price that
is underpricing.
In this study, the risk is an independent variable
and the initial return is a dependent variable. Risk
disclosure is evaluated in comparison to invest-
ment, internal, and external risks. For instance,
two control variables measuring the company’s
size and workforce are used in this study. e
purpose of utilizing this variable control is to
bolster the ongoing research (Gupta et al., 2021;
Wasiuzzaman et al., 2018). is study’s variable
adjustment makes use of both measuring qualita-
tive and quantitative.
e present study used qualitative methods to as-
sess internal risk disclosure (DRI), external risk
disclosure (DRE), and investment risk disclosure
(DRV). It may be argued that qualitative risk dis-
closure is represented by the overall quantity of
risk disclosure (DRA). is is so that the indicator
items that are accessible from each risk disclosure
can be included in the calculation. Based on the
number of indicators that have been used in the
risk disclosure in the IPO company’s prospectus,
the value of the indicator item is calculated.
In this study, however, the dependent variable is
the initial returns, which are quantied. e re-
turn or reward that investors get when they pur-
chase stock securities is known as a return. e
rst return on the IPO’s rst day is chosen be-
cause this research is conducted in the setting of
an initial public oering. e payout for varia-
tions in share prices aer the price was rst re-
corded at the time of issuance is known as the
initial return (IR). In this research, referring
to Gupta et al. (2021), Siwach et al. (2023), and
Wasiuzzaman et al (2018), the initial return is
calculated by dividing the share oering price
at the IPO by the closing share price on the rst
day of the IPO, aer which it is subtracted. is
research uses two control variables: the compa-
ny’s age (AGE) and its size (Size), both of which
are quantied. is model of risk assessment
uses the control variable as a means of assess-
ing the impact of internal, external, and invest-
ment risk on the initial return (Gupta et al., 2021;
Wasiuzzaman et al., 2018).
is study uses multiple linear regression analy-
sis in the data analysis method. is is due to the
cross-sectional data used in the research, which
shows that companies only do initial public oer-
ings (IPOs) once every year. erefore, before per-
forming the regression analysis, the analysis was
conducted using a set of standard assumptions,
which included matrix correlation, multicollinear-
ity, and heteroscedasticity. e multicollinear-
ity test in this study uses the Variable Ination
Factor (VIF) and independent variable correlation.
Besides, the heteroscedasticity test used in this
study employs the Breusch-Pagan (BP) test. us,
based on the variable measures that were previ-
ously presented serve as the foundation for the
empirical model in this research:
, 01 , 2 , 3 ,
4 ,5 , ,
,
it it it it
it it it
IR DRI DRE DRV
AGE IPOSize
ββ β β
ββ ε
=++ +
++ +
(1)
, 01 , 4 ,
5,
,
it it it
it
IR DRI AGE
IPOSize
ββ β
βε
=++
++
(2)
, 02 , 4 ,
5 ,,
,
it it it
it it
IR DRE AGE
IPOSize
ββ β
βε
=++
++
(3)
, 0 3 ,4 ,
5 ,,
,
it it it
it it
IR DRV AGE
IPOSize
ββ β
βε
= ++ +
++
(4)
, 06 , 4 ,
5,
,
it it it
it
IR DRA AGE
IPOSize
ββ β
βε
=++
++
( 5)
where the regression coecients for each inde-
pendent variable are β1-β5, β0 is a constant, and IR
stands for initial return; Internal risk disclosure
is called DRI. Disclosure of external risks (DRE)
and investment risks (DRV ) e entire amount of
risk disclosure is known as DRA. IPOSize is the
overall asset size of the company, and AGE is the
compa ny’s a ge.
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e rst model is the model used to test all in-
ternal, external, and investment risk disclosure
variables and control variables. e rst model
tested the impact of disclosure and control factors
related to investment, external, and internal risk
on initial return. e second model is used to es-
timate the impact of internal risk on the initial re-
turn using the control variable. e third model is
used to estimate the impact of external risk on the
initial return using the control variable. Tests of
the impact of investment risk disclosure on initial
return using control variables are conducted using
the fourth model. e nal model examines how
beginning returns with control variables are im-
pacted by overall risk, or the total level of informa-
tion about internal, external, and investment risk,
because the IPOs occur annually and last for three
years. us, utilizing the models to be evaluated
annually, the eect of risk disclosure DRI, DRE,
DRV, and all DRA on IR on initial returns in com-
panies undergoing IPOs is also examined annu-
ally in this research.
3. RESULTS AND DISCUSSION
e description of data gives a general summary
of the risk disclosure issued at the IPO and then
goes into more detail according to the years of the
study (Table 2).
Table 2. Descripon of data
Variable Mean SD Min Max
IR 0.30 0.17 0.01 0.70
DRI 5 2.54 0 16
DRE 61.67 111
DRV 30.91 0 5
DRA 14 3.90 6 27
AGE 17 12.38 164
IPOSize 29.36 31.26 23.16 33.67
As an illustration, the average IR was 0.30, the
lowest value was 0.01, and the highest is sug-
gests that there was underpricing, as there was a
positive initial return throughout the IPOs, and
in a similar vein, underpricing will result from
paying attention annually. However, it should be
noted that while the average age of the rms that
launched IPOs during the COVID-19 epidemic
was 17, some of them had been in operation for
as little as a year, and the oldest was 64 years old.
en, the average size of the rms that had IPOs
was 29.36 logarithms, with the biggest size being
33.67 logarithms and the smallest being 23.16 log-
arithms for each company.
Additionally, the overall risk disclosure has a mean
value of 14 items, with 27 being the lowest. Internal
risk disclosure, on the other hand, includes an aver-
age of ve disclosures, a maximum of sixteen items,
and some that do not disclose. In contrast, the aver-
age number of elements in the external risk disclo-
sure is six; the lowest number is one, and the great-
est number is eleven. Ultimately, internal risk has an
average disclosure of three elements, with the lowest
risk disclosure of 0 and the maximum risk disclosure
of 5. Many risk variables were not disclosed for each
risk since each rm executing an IPO made them ir-
relevant (Wasiuzzaman et al., 2018).
Before going into the estimation of the ordinary
least squares (OLS) regression model, this re-
search covers the matrix correlation, multicol-
linearity, and heteroscedasticity. Table 3 shows a
signicant relationship between DRE and IR in a
negative (-0.1663*) direction, while the other in-
dependent variables, DRI, DRV, DRA, AGE, and
IPOSize did not show a signicant relationship.
is can be interpreted as saying that in IPOs dur-
ing the COVID-19 pandemic, external risk disclo-
sure (DRE) can reduce IR.
Table 3. Analysis of correlaon
Panel A. Matrix correlaon analysis
Variables IR DRI DRE DRV DRA AGE IPOSize
IR 1
DRI 0.0474 1
DRE –0.1663* 0.3042*** 1
DRV –0.0855 0.3599*** 0.3096*** 1
DRA 0.118 8 0.8491*** 0.7022*** 0.5961*** 1
AGE 0.0599 0.1361 0.1812** 0.0423 0.1786** 1
IPOSize 0.0536 0.323*** 0.3806 *** 0.2189** 0.4295*** 0.1774** 1
Note: Signicance level (*, 10%), (**, 5%), and (***, 1%).
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Furthermore, the VIF test did not detect multicol-
linearity during this study, even though the re-
sults may be improved. is multicollinearity is
caused by cross-sectional data in the OLS regres-
sion model, which more heavily requires hetero-
skedasticity correction (Wasiuzzaman et al., 2018).
Heteroscedasticity and multicollinearity were not
discovered in this study. e Breusch-Pagan (BP) test
results were not signicant at 5%, and none of the
VIF scores averaged 10 (see Table 4). Besides, the re-
lationship between the independent and dependent
variables has a low relationship as shown in Table 3,
where only external (DRE) signicant relationship
with the initial return.
e regression estimation ndings based on the
previously identied regression model statistics
are explained in each of the ve models of regres-
sion results (Table 4).
Based on Table 4, model 3 is a t model with an F
statistical probability value that is signicant at 10%,
in comparison, models 1, 2, 4, and 5 do not oer a
t regression model because of the probability of F
statistic value is not signicant at any level of signi-
cance. Model equation 1 explains the eect of inter-
nal, external, and investment risk disclosure (DRI,
DRE, and DRV) on IPO initial returns. Equation 2
explains the eect of internal risk disclosure on IPO
initial returns, equation 5 explains the eect of ex-
ternal risk disclosure (DRE) on IPO initial returns.
Model 4 explains the eect of investment risk disclo-
sure (DRV) on IPO initial returns, and equation 5
explains the eect of overall risk disclosure (DRA)
on IPO initial returns. Besides, Table 4 shows that in-
ternal risk disclosure (DRI), investment risk (DRV),
company age (AGE), and company size (Ln IPO
SIZE) do not aect IPO initial returns in all models.
Based on the results of data analysis in Table 4,
it can be analyzed that external risk disclosure
(DRE) shows a negative and signicant inu-
ence on IPO companies’ initial returns dur-
ing the pandemic (Model 1 and Model 3). In
Models 1 and 3 the coecients are -0.021** and
-0.023** with 5 percent signicance level. is
means that IPO companies’ lower external risk
disclosure (DRE) can improve initial returns
during the pandemic. Meanwhile, in Model 5,
the overall risk disclosure (DRA) has a negative
coecient (-.007**), which is signicant at 5%,
explaining that overall risk disclosure (DRA)
can cause a decrease in initial returns for IPO
companies during the pandemic. So, in this
research, there are two (2) supported hypoth-
eses, namely: H2 that external risk disclosure
inuences initial return, and this result dier-
ent with Wasiuzzaman et al. (2018) who indi-
cate that the external risk is not signicant for
the initial return, and H4 that overall risk dis-
closure inuences initial return. is result is
consistent with studies of Albuquerque et al.
(2023), Filzen et al. (2023), Grover and Bhullar
(2021), Wasiuzzaman et al. (2018) that found
that overall risk exposure aected initial return.
Meanwhile, H1 and H3 are not supported, and
this is consistent with what was mentioned by
Ding (2016); Gupta et al. (2021), R. Handayani
and P. Handayani (2022) who stated that there
is no eect of risk disclosure on initial returns.
e ndings above show that external risk dis-
closure is important and very relevant for inves-
tors regarding IPO initial returns compared to
internal risks and investments during the pan-
demic. is indicates that investors in Indonesia
feel greater uncertainty, not in the company and
investment, but in the company’s external con-
ditions which inuence IPO initial returns to be
low. Meanwhile, the insignicance of internal
and investment risks that inuence IPO initial
returns is due to investors’ unpreparedness or
lack of focus on the company’s external infor-
mation. So, it emphasizes that during the pan-
Table 4. Result of esmaon
Models CDRI DRE DRV DRA AGE Ln IPO Size R2F-Te s t VIF BP
10.0 74 –0.0 01 – 0. 02 1** –0.008 – 0.001 0.014 0.052 1.43 1.22 0.10
20.126 –0.005 – – – 0.0001 0.007 0.011 0.48 1.18 2 .70
30.084 –– 0.023** – – 0.001 0.013 0.05 2.29* 1.14 0.10
4–0.1 53 – – –0.019 – 0.0 01 0.006 0.015 0.69 1.06 1.64
50.069 – – – –0.0 07** 0.001 0.011 0.032 1.47 1.18 0.84
Note: Signicance level (*, 10%), (**, 5%), and (***, 1%).
8
Investment Management and Financial Innovations, Volume 21, Issue 4, 2024
http://dx.doi.org/10.21511/im.21(4).2024.01
demic, the most important thing is the quality
of external risk information revealed in the pro-
spectus of companies that are IPO on IDX. In
other words, investors in Indonesia assume that
external and overall risk disclosures that pro-
vide negative results are a form of the potential
inability of company management to control
the company during the pandemic.
CONCLUSIONS AND IMPLICATION OF THE STUDY
is study investigated how risk disclosure aects the initial returns of companies undergoing initial
public oerings (IPOs) during the Indonesian pandemic. e analysis revealed that external risk disclo-
sures signicantly negatively impacted initial returns over the three-year research period. is nding
suggests that potential investors in Indonesia were particularly concerned with external risks, implying
that more thorough external risk disclosure could reduce initial returns. Additionally, the study found
that overall risk disclosure also inuenced initial returns.
e yearly analysis presented varied results. In 2020, initial returns were inuenced by the rm’s age,
with older companies generally providing higher initial returns when they went public. In 2021, both
the overall risk and the size of the company were signicant factors, indicating that larger companies
with extensive risk disclosures could oer higher initial returns. By 2022, investment risk factors be-
came more prominent, suggesting that investors were increasingly aware of investment risks, and com-
panies with robust investment risk management practices saw minimized initial returns. e ndings
of this study have important implications for both practice and theory. Practically, companies consider-
ing IPOs should prioritize comprehensive risk disclosure, particularly regarding external risks, to align
with investor concerns and potentially mitigate negative impacts on initial returns. For policymakers
and regulatory bodies, the results underscore the need for clearer guidelines on risk disclosure practices
to ensure consistency and transparency in the IPO process.
From a theoretical perspective, this study enhances the understanding of risk disclosure’s role in shap-
ing investor behavior during IPOs. It supports and extends existing theories by highlighting how dier-
ent types of risk disclosures – internal, external, and investment – aect initial returns over time and in
dierent market conditions. Future research could build on these ndings by exploring industry-specif-
ic impacts and comparing pre-, during, and post-pandemic data to further rene theoretical models of
risk disclosure and investor behavior.
AUTHOR CONTRIBUTIONS
Conceptualization: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Muhammad Rizal, M.
Shabri Abd. Majid.
Data curation: Ghazali Syamni, Murhaban Murhaban, Rico Nur Ilham, M. Shabri Abd. Majid.
Formal analysis: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Rico Nur Ilham,
Muhammad Rizal, M. Shabri Abd. Majid.
Funding acquisition: Ghazali Syamni, Radah Othman, Rico Nur Ilham.
Investigation: Ghazali Syamni, Radah Othman, Muhammad Rizal, M. Shabri Abd. Majid.
Methodology: Ghazali Syamni, Rico Nur Ilham, Muhammad Rizal, M. Shabri Abd. Majid.
Project administration: Radah Othman, Murhaban Murhaban, Muhammad Rizal, M. Shabri Abd.
Majid.
Resources: Murhaban Murhaban, Rico Nur Ilham.
Soware: Rico Nur Ilham.
Supervision: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Muhammad Rizal, M. Shabri
Abd. Majid.
9
Investment Management and Financial Innovations, Volume 21, Issue 4, 2024
http://dx.doi.org/10.21511/im.21(4).2024.01
Validation: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Muhammad Rizal, M. Shabri Abd.
Majid.
Visualization: Ghazali Syamni, Radah Othman, Rico Nur Ilham, M. Shabri Abd. Majid.
Writing – original dra: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Rico Nur Ilham,
Muhammad Rizal, M. Shabri Abd. Majid.
Writing – review & editing: Ghazali Syamni, Radah Othman, Murhaban Murhaban, Rico Nur Ilham,
Muhammad Rizal, M. Shabri Abd. Majid.
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