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The real effects of primary and secondary equity markets on firm performance: Evidence from Indonesia

Andriansyah Andriansyah (Centre for Macroeconomic Policy, Fiscal Policy Agency, Ministry of Finance of the Republic of Indonesia, Indonesia)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 7 August 2017



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.


The author 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 Indonesian equity market over the period of 1999-2013.


While confirming that firm operating performance can be explained by the firm’s motivation to go public, the author also shows that the operating performance is positively affected by investment-to-price sensitivity and negatively affected by stock price informativeness. The stock prices affect investment decisions by 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.


Departing from the existing literature, the author investigates the role of primary and secondary equity markets for firm performance in an integrated framework because both markets interact closely in reality. The author shows that public listed firms can benefit both from the capital-raising function of the primary market and from the informational role of the stock prices of the secondary market. A measure of stock price informativeness, 1−R2, however, must be understood in the context of thin trading in the sense that the level of liquidity affects the level of stock price informativeness.



Andriansyah, A. (2017), "The real effects of primary and secondary equity markets on firm performance: Evidence from Indonesia", International Journal of Managerial Finance, Vol. 13 No. 4, pp. 397-418.



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