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CHAPTER 2
THEORETICAL
FOUNDATION
2.1 Theoretical
Foundation
The  first  part  of  this  chapter  will  cover  the  literature  reviews  and  fundamental
theories that will serve as
a
guide and basis of
this paper.  The second part will cover
the  theoretical 
framework 
that  will  serve  as  a  basis 
of  this  research 
based 
on
literature
reviews
and fundamental
theories.
The first section
of this part would cover
the  definition  of  IPO  then  the  process  of  conducting  IPO  in  Indonesian  Capital
Market.
Next,
it would
discuss
the phenomenon
of underpricing,
long run returns
and
factors
incorporated
in
the
performance
of
IPOs.
Third
part
will
cover
the
different
marketing
methods
in
determining
the
price
of the
IPOs.
In
the
fourth
section,
it
discusses  the
nature  and
value  of
investors’ 
information 
in
one
of
the
marketing
method,
and
in
the
last
section,
the
author
will
elaborate
the
characteristics
of
firms
that might
influence their choice in marketing
method.
2.1.1 Definition of Initial Public Offering
Before
shares can
be
traded
in
the
capital
market,
it
will first be
offered
to
the
public
in
the
form
of
an
Initial
Public
Offering
(IPO).
Foerster
et
al.
(2001)
states
that
IPO
is
a transition
from
a private
company
to
become
a public
company.
According
to
Ritter
(1991),
IPO
is
an
event
where
the
securities
of
the 
company 
are 
offered 
to 
the 
general 
public 
for 
the 
very 
first 
time.
Companies
who
offer
IPOs
usually
have
expectations
that
a
liquid
market
will
be  developed 
along  with  the  offering 
by  listing 
it  in  the  stock  exchange
(Geddes,  2003).  From  all
of
the
definition  mentioned  above,  IPO
could  be
defined
as a transition
from a private
company
to public
company,
by
offering
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