The Real Effect of Primary and Secondary Equity Markets on Firm Performance: Evidence from Indonesia

Andriansyah Andriansyah

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this paper is to investigate the real effects of primary and secondary equity markets on the post-issue operating performance of initial public offering (IPO) firms. This paper utilizes the intended use of proceeds as a proxy variable for the primary market and the investment-to-price sensitivity and the informativeness of stock prices as alternative proxy variables for the secondary market. The compositional data, and non-parametric quantile regressions which are more robust to outliers than standard least square regressions, are employed for the Indonesian equity market over the period of 1999-2013. While confirming that a firm operating performance can be explained by the firm’s motivation to go public, this paper also shows that the operating performance is positively affected by investment-to-price sensitivity and negatively affected by stock price informativeness. Stock prices affect investment decisions in the way that the more liquid a stock is, the more informative its price is, and the more relevant stock prices are in investment decisions. These findings still hold after controlling for ownership structure.

Keywords: The primary market; The secondary market; Firm performance; Indonesia (search for similar items in EconPapers)
JEL-codes: G23 (search for similar items in EconPapers)
Date: 2017
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Published in International Journal of Managerial Finance 13.4(2017): pp. 397-418

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