Lukas Setia-Atmaja

This paper examines the impact of family ownership, management, and generations on IPO underpricing and the long-run performance of publicly listed firms in Indonesia from 2004 to 2015. This study is based on agency theory, which discusses the relationship between shareholders and management, as well as controlling and non-controlling shareholders. Study results show that IPO underpricing was 28% higher for family firms than non-family firms. Among family firms, a family member’s presence as a Chief Executive Officer (CEO) significantly reduced the level of IPO underpricing. A negative relationship between family CEO and IPO underpricing was only observed if a CEO at the time of IPO was the founder instead of family descendants. A long-run return of family-firm IPOs was more likely to underperform their non-family-firm counterparts. The findings in the primary market suggest that investors predict bigger issues of agency conflicts between controlling and non-controlling shareholders in family firms than the issues of agency conflicts between shareholders and management in non-family firms. Since investors consider family-firm IPOs to be riskier than non-family firms, they demand a higher level of IPO underpricing to compensate for such risks. The results in the secondary market confirm the findings in the primary market.

This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.