INTERNAL FINANCIAL RISK OR MACROECONOMIC PRESSURE? EXPLAINING IPO UNDERPRICING THROUGH FINANCIAL LEVERAGE AND INFLATION

Abstract

This study examines the effect of financial leverage on IPO underpricing with inflation as a moderating variable in companies conducting initial public offerings (IPOs) on the Indonesian Stock Exchange between 2021 and 2025. IPO underpricing remains a persistent phenomenon in emerging markets, reflecting high levels of information asymmetry and uncertainty in the pricing of newly listed firms. This research is grounded in information asymmetry and signalling theories, which explain that investors interpret financial information as signals when evaluating firm quality during IPOs. This study employs a quantitative causal approach using partial least squares–structural equation modelling (PLS-SEM) with WarpPLS 7.0. The sample consists of 48 non-financial IPO firms selected through purposive sampling. The findings reveal that financial leverage has a negative and significant effect on IPO underpricing, indicating that investors perceive leverage as a positive signal reflecting managerial confidence and firm growth prospects rather than merely financial risk. Furthermore, inflation significantly moderates the relationship between financial leverage and IPO underpricing by strengthening the negative effect of leverage on underpricing. These results suggest that macroeconomic conditions influence how investors interpret leverage in the IPO market. This study contributes to the IPO underpricing literature by highlighting the role of macroeconomic conditions in shaping investor perceptions of corporate financial signals in emerging markets.