The influence of financial ratios toward initial public offering in banking sector which listed in Indonesia stock exchange 2006-2009

THE INFLUENCE OF FINANCIAL RATIOS TOWARD INITIAL PUBLIC OFFERING IN BANKING SECTOR WHICH LISTED IN INDONESIA STOCK

EXCHANGE 2006-2009

Proposed by: Faw zia Am elia 107081103371

Int ernat ional Undergraduat e Program Syarif Hidayat ullah St at e Islamic Universit y Jakart a

Facult y of Econom ics and business 2011

i

CURRICULUM VITAE

I.

PERSONAL DATA

1. Name : Fawzia Amelia

2. Gender : Female

3. Place/Date of Birth : Jakarta/ July, 22,1989

4. Nationality : Indonesian

5. Marital Status : Single

6. Religion : Moslem

7. Address : Puri Teluk Jambe Jl. Danau Tempe B6/5 RT 27/ 04

Teluk Jambe, Karawang West Java 41361

8. Contact Number : 082112854865

9. E-mail : fawzia.amelia@gmail.com

II.

EDUCATIONAL BACKGROUND

1. TK Manaratul Ulum 1993-1995

2. SDN Kramat Pela 01 1995-1999

3. SDN Sirnabaya III 1999-2001

4. SMPN 1 Karawang 2001-2004

5. SMAN 5 Karawang 2004-2007

6. Undergraduate Universiti Utara Malaysia (BIBM) 2009-2011

7. Strata 1 UIN Syarif Hidayatullah Jakarta (Management) 2007-2011

III.

ORGANIZATIONAL BACKGROUND

1. Member of Indonesian Student Committee in UUM

2. Consumption judges of “Cultural Fever” multicultural event in UUM. 3. Participant of table manner and Social Ethic UUM.

ii

Abstrak

Rasio keuangan dapat digunakan sebagai perubahan pendapatan, pendapatan masa depan, kegagalan perusahaan, evaluasi dan harga penawaran. Objeksi dari penelitian ini adalah ingin identifikasi pengaruh dari rasio keuangan terhadap harga penawaran perdana saham yang terdaftar di Bursa Efek Indonesia.

Sampel di penelitian ini adalah perusahaan yang terdaftar di pasar modal. Sampel adalah perusahaan yang bergerak di perbankan. Sampel diambil berdasarkan tanggal terdaftar mereka tahun 2006-2009. Di skala tahun ini terdapat 10 perusahaan.

Hasil dari penelitian ini menemukan bahwa rasio keuangan berpengaruh lemah terhadap harga perdana saham di perbankan.

iii

Abstract

Financial ratios can be used as earning change prediction, future earning, company failure or bankruptcy, performance evaluation and offering price. The objective of this research wants to identify the influence of financial ratio to offering price of stock that listed in Indonesia Stock Exchange.

Sample in this research are companies those listed their stock in capital market. Sample are companies those run in banking sector. Samples are taken based on their listed date from 2006-2009. In this scale year, listed banking are 10 companies.

The result of this research found that financial ratio influenced weakly the offering price of stocks for all sample in banking sector.

iv

PREFACE

Assalamualaikum, wr.wb

Firstly thanks to Allah SWT because of His blessing the writer can finished this proposal. Shalawat and Salam also give to the guidance prophet Muhammad SAW also to his best friends.

In this chance, writer wants to say thanks for supporting and helping from every party to writer in finishing this proposal. So, thankful would be for:

 Writer’s family, Father, Mother, Sister and my big family who always support me, pray me, and inspired me, also be my big motivation for writer herself, so can make the writer in high spirit to finish this thesis.

 Mr. Indoyama Nasaruddin, SE, MAB, first guidance who already gives me so much suggestion, opinion, and helps me in doing this thesis.

 Mr. Arief Mufraini, Lc, M.Si the head og International Program and as my second guidance who already kindly helping me in doing the thesis, gives me so many supports and suggestion.

 Prof Dr . Abdul Hamid, MS as a Dean of Economic and Business Faculty.

 All Lecturer who already give their knowledge for me and I can’t mention their name by name, wish Allah replying your all kindness.

 All the staffs of Faculty of Economic and Business, thanks for helping, simplicity, and all your services.

v

 Alditya Aris Rinandy, for so much helping and supporting.

 My friends in Islamic State University for the togetherness and friendships.

 My internship friends in Bank Muamalat Indonesia Icha, Lucky and Lia who already support me in finishing this thesis while I’m doing internship there.

 My friends in Universiti Utara Malaysia who already given me support and shoulder to cry on.

 My dual degree friends Ariningtyas, Pramayassya, Weldan, Dewi, and Fitra as a struggle friends in UUM.

With the humbleness, this thesis is still far from the perfection because of the limited ability and knowledge that the writer has. Thus, writer wish for suggests and critics also responses from all parties toward the better thesis and can be useful for everyone else who read it. In the end, writer wishes that this thesis can be useful for reader and parties who need it.

Jakarta, 6 June 2011

vi TABLE OF CONTENT

Curriculum Vit ae ... i

Abst rak ... ii

Abst ract ... iii

Preface... iv

Table of Cont ent ... vi

List of Tables ... vii

List of Figure ... ix

CHAPTER 1 INTRODUCTION A. Background ... 1

B. Research Problem ... 3

C. Research Quest ion ... 5

D. Research Object ive ... 5

E. Populat ion and Research Sam ple ... 6

CHAPTER 2 THEORITICAL FRAM EW ORK A. Lit erat ure Review ... 8

1. Banking ... 8

2. Financial ... 8

3. Financial M arket ... 9

4. Init ial Public Offering ... 13

5. Financial Report ing ... 20

6. Financial Rat ios ... 30

B. Previous Research ... 40

C. Logical Fram ew ork ... 46

D. Hypot hesis ... 48

CHAPTER III RESEARCH M ETHODOLOGY A. Dat a Collect ion M et hod ... 50

vii

C. Variable Definit ion and M easurem ent of Operat ional ... 51

D. Populat ion and Sam ple ... 52

E. Dat a Collect ion Techniques ... 53

F. Classic Assum pt ion ... 54

G. Hypot hesis Test ... 57

CHAPTER IV ANALYSIS AND FINDING A. General Descript ion of Research Object ... 62

B. Descript ive St at ist ic ... 64

C. Pre- Analysis (Classic Assum pt ion) ... 80

D. Hypot hesis Test ... 85

E. Int erpret at ion ... 91

CHAPTER V CONCLUSION A. Conclusion ... 93

B. Recom m endat ion ... 93

C. Im plicat ion ... 94

D. Lim it at ion ... 94

REFERENCES ... 95

viii LIST OF TABLES

No. Description

3.1 D Test Durbin W atson : decision rule ... 56

3.2 Table Annova ... 59

4.1 Sample Data Banking Sector ... 65

4.2 M odel Summary of Durbin W atson ... 82

4.3 M odel Summary of F test ... 84

4.4 M odel Summary of T Test... 85

ix LIST OF FIGURES

No. Description

2.1 Interaction of Company and Financial M arket ... 12

2.2 Theoretical Framew ork ... 46

2.3 IPO M odel ... 47

4.1 CFCL Data ... 68

4.2 NW TLFA Data ... 70

4.3 GPS Data ... 72

4.4 NIS Data ... 74

4.5 OITL Data ... 76

4.6 NW S Data ... 78

4.7 NITL Data ... 79

4.8 NINW Data ... 80

4.9 NW TL Data ... 81

1 CHAPTER I

INTRODUCTION A. Background

Capital Market is a place to look for liquid money to increase business activity so can produce much more profit. Fresh money that exists in capital market is come from society who is called as investor. Investor doing some kind of analysis technique to determine where the investment place have higher chance to produce profit and have less risk will faced by higher demand of investors to invest in the company. In order we can get fund from stock market, emittent has to fulfill the requirement which is applied by stock market. The most important requirement for demand the fund from stock market is emittent has to provide their financial report which is describing its financial position. What it means by financial report is it’s balance sheet.

Financial report is financial information notes of a company to an accounting period of time which can be used to describe affectivity of company performance. Financial report is part of financial reporting process. Complete financial report consist of balance sheet, statement in changes in equity.

Elements that related directly to financial position measurements are active, obligatory and equity. Meanwhile, element that related to

2 performance measurement in balance sheet is income statement. Financial report is usually reflecting to the elements of balance sheet and profit loss statement.

Profit can be considered to be differentiate between the purchase price and the cost of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture or purchase) in terms of the component cost of delivering goods and or service and other operating or other expenses.

Financial report define as information about financial position in a period of time which beneficial for take any economic decision, also management responsibilities for managing economic source which applied by owner to the company. In the base of financial report, users in this case investor can predict the situation of your financial company currently and future. In order to predict the present financial situation and for future can be used some variables. One of them is financial ratio.

From some of the researches one of them is Marian Vorek (2009), he said that financial ratio can be used to predict financial position currently and future. Thus, this research take variables which same as the earlier research that is financial ratio, but those financial ratios used to predict the first stock price that offered in initial public offering. Based on the explanation, writer was attract to research how the influence of financial information in this term financial ratio to initial public offering in

3 banking sector those listed in Jakarta Stock Exchange. Thus, title of this research is “THE INFLUENCE OF FINANCIAL RATIOS TOWARD INITIAL PUBLIC OFFERING IN BANKING SECTOR WHICH LISTED IN INDONESIA STOCK EXCHANGE 2006-2009”

B. Research Problem

As the background stated above, we want to know the relationship between financial ratios to IPO of banking industry.

Mas’ud Machfoedz (1994:114) classifying financial ratio in 9 group of financial ratio which are :

1. Short term liquidity:

It consists of Cash to Current Liabilities, Cash Flow to Current Liabilities, Quick Asset, Current Asset

2. Long term solvency

It consists of Current Asset to Total Liabilities, Net Worth and Long Term Debt to Fixed Assets, Net Worth to Fixed Assets.

3. Profitability

It consists of Operating Income to Net Income Before Taxes, Earnings Before Taxed to Sales, Gross Profit to Sales, Operating Income to Sales, Net Income to Sales.

4 4. Productivity

Inventory to working capital, cost of goods sold to inventory, sales to quick assets, sales to cash, sales to account receivable, cash flow to total asset, current asset to total asset, quick asset to inventory, inventory to sales, sales to total asset, working capital to total asset

5. Indebtedness

It consists of Total liabilities to current asset, operating income to total liabilities, current liabilities to total asset,

6. Investment intensiveness

It consists of Cash flow to total Liabilities, Sales to Fixed Assets, Working Capital to Asset, Current Assets to Sales, Quick Asset to Total Asset, Net Worth to Sales, Working Capital to Sales, Inventory to Total Assets, Cash Flow to Sales.

7. Leverage

It consists of Net Worth to Total Assets, Current Liabilities to Inventory, Total Liabilities to Total Asset.

5

8. Return on investment

It consists of Earning before taxes to net worth, net income to fixed assets, net income to net worth, earning before income taxes to total assets, Net Income to Total Assets

9. Equity

It consists of Sales to Current Liabilities, Net Income to Total Liabilities, Current Liabilities to Net Worth, Net Worth to Total Liabilities.

That can be counted be 49 financial ratios. From 49 ratios can be used as 9 ratios to predict the future profit changes of a company. From that 9 ratios, there is a significant in a significance level 5% which consists from profitability ratio group that are Gross Profit to Sales, Income to Sales, Income to Sales and Net Income to Net Worth. The research result also found out that financial ratio can predict future profit for one period of time.

C. Research Question

In attempting to achieve the objectives above, this study seeks to address the following research question what does the influences of financial information to the initial public offering for banking industry in Indonesia Stock Exchange partially and simultaneously?

6 D. Research Objective

This research is aimed to know the influence of financial ratios partially and simultaneously (x) toward the initial public offering in banking industry in Indonesia Stock Exchange.

1. Usage of Research

Usages of this research are:

a. Academic

Theoretically it can be used as knowledge development and expand the references about influence of financial ratios to initial public offering in Stock Exchange Jakarta.

b. Investor

Whish this research can give any suggestion to investor, co-investor and companies about factors that can be influence the initial public offering.

c. Writer

This research is a media to applied knowledge that has been gotthen from, thus writer would know the difference and compare between theory, how to applied, and fact field.

7 d. Stock Exchange

Wish this research can give any advice to stock exchange as a transaction place about factors which influence initial public offering. So, further applied would be better.

8 CHAPTER II

THEORITICAL FRAMEWORK A. Literature Review

1. Bank:

According to (duhaime :2011) definition of bank is a corporation empowered to deal with cash, domestic and foreign, and to receive the deposits of money and to loan those monies to third-parties.

Bank definition authentically has been arranged in law of banking 1967. Which means that bank is financial institution that the main business is giving credit and services in financial traffic and money spreading. Rachmadi Usman (2003:59).

2. Financial

Financial management is concerned with the maintenance and creation of economic value or wealth. This focuses on decision making with an eye toward creating wealth. As such, we will deal with financial decision such as when to introduce a new product, when to invest in new assets, when to replace existing assets. When to borrow from banks, when to issue stocks or bonds, when to extend credit to a customer, and how much cash to maintain. (Arthur J. Keown:2005) p. 4

9 In learning finance, well managed company in financial side can be used for fulfill goal of the firm such as profit maximization and maximization for shareholder wealth.

In companies, finance division is kind of important division because it is measuring whether the company has health financial or not. It can be measured by providing financial statement such as net income, balance sheet, and cash flow.

Companies can raise fund through several ways and one of them is by financial market.

3. Financial Market

Financial Market the place where financial assets are exchanged. Although the existence of a financial market is not necessary condition for the creation and exchange of a financial asset, in most economies financial assets are created and subsequently traded in some type of organized financial market structure (Fabozzi, J Frank & Franco Modigliani : 2009)

They also considered that financial market can be classified in three ways.

10 a. First is according financial claim. The claims are traded in a financial market may be either for a fixed dollar amount or a residual amount.

b. Second way is according to the maturity of the claims. Financial market for the short term financial assets called money market, and the one for longer maturity financial assets is called the capital market. The traditional cut off between short term and long term is one year. A financial asset with a maturity of more than one year is part of the capital market. Thus, the debt market can be divided into debt instruments that are part of the capital market, and those that are part of the capital market, depending on the number years to maturity.

c. Third way to classify financial market is by whether the financial claims are newly issued. The market for newly issued financial asset is called the primary market. After a certain period of time, the financial is bought and sold (i.e., exchanged or traded) among investors. The market where this activities takes place is referred to as the secondary market.

According to Roberto G. Medina (1988) Capital Market is that portion of the financial market which deals with longer term loanable funds, the money market in contrast deals with short term funds. The difference between capital market and money market is the length of

11 time. Money market deal with short term fund which is for a year the maturity date and capital market deal with long term maturity date which is more than a year.

There, in financial market where the traded place for all financial claims (securities). Financial claims could be divided into:

a. Financial Asset is claims for future payment by one economic unit on another (Arthur J. keown : 2009). Financial asset serves economic functions which is transfer funds from those parties who have surplus funds to invest to those who needs funds to invest in intangible assets. (Fabozzi, J Frank & Franco Modigliani : 2009) b. Real Assets is tangible assets such as houses, equipment, and

inventories. ( Arthur J. keown : 2009).

One of company goal is raising fund and it can be done through financial market. Let us take a look the flow of capital through the financial markets among corporation, individuals, and the government.

12 Cash Reinvested in the corporation

Cash flow from operation

3. Cash distributed to investor

Taxes

Figure 2.1 : Interaction of corporation and financial market

Figure above is explaining about relationship among government, individuals, and corporation. Initially corporation raising funds in the financial markets by selling securities. Corporation receives cash in return for securities-stocks and debt. Corporation then invests this cash in return-generating assets new projects for example and the cash flow from this Corporat ion

2. Corporat ion

invest in ret urn generat ing

asset

Governm ent 1.

Prim ary M arket Cash

Securit ies _{Invest ors} Secondary

M arket s Securit ies

t raded am ong invest ors

13 assets is then either reinvested in the corporation; given back to the investors in the form of dividens or interest payments, or used to repurchase stock, which cause the stock price to raise; or given to the government in the form of tax payments. (Arthur J. Keown : 2009)

Table above, we can see the financial market elements just like primary market and secondary market. A primary market is a market in which new, as opposed to previously issued, securities are traded. Once the newly issued stocks in the public’s hands. It then begin the trading in the secondary market. Arthur J. Keown (2009:11). In primary market, there is the trading of initial public offering begin.

4. Initial Public Offering (IPO)

Primary market which is the primary trading of claims, initial public offering of company also happen there.

According to Achleitner (2002 ; .242) Initial Public Offering (IPO) means initial placing of enterprise’s shares on an organized capital market.

According from Richard P. Kleeburg (2005) said that initial public offering is the process many business owners go through in the hope of becoming extremely wealthy. The IPO marks the beginning of the process. The decision to launch an IPO often means a decision to

14 change the structure of the business, once the decision is made to sell stock to the public.

It must be ascertained if an IPO is really the best strategy of the company. In deciding whether going public is the right thing to do, managers must weigh the benefits against and drawbacks. The most appealing benefits and opportunities are these:

Enhanced financial condition

 Increase in shareholder value

 Diversification of current shareholders portfolios

 Additional capital to perpetuate growth

 Higher market value for the company

 Improved opportunities for future financing

 Greater potential for mergers and acquisition

 Enhanced corporate image and increased employee

 Stock exchange listing

While the drawbacks are:

 Loss of company control

 Sharing the company’s success

 Loss of control over information

15

 Extensive periodic reporting and accountability

 Initial and continuing expense

 Limits on major shareholder

 New fiduciary responsibilities

Stocks are first issued to investors through what is known as the primary or new issues market.

In Initial Public Offering (2005:30) According to (Alon Brav :1999) Typically, companies are founded by one or few entrepreneurs and initially held by a small number of investors. At some point the company decides to raise capital by offering shares to the general public. This is known as an initial public offering (IPO). The company may decide to raise more capital through selling shares in the future. These subsequent offerings are called seasoned equity offerings (SEO). IPOs and SEOs together form the equity primary market. In most cases companies enlist the help of an investment bank for conducting these offerings. The bank handles the distribution of shares to investors. Sometimes they also provide companies with a guarantee to sell a certain number of shares in exchange for a fee. Investors purchase stocks for their returns. These returns come in the form of:

capital gains - the appreciation in value over time, and 3 dividends - most companies pay periodic dividends. Investors will be reluctant to purchase a stock unless there is a mechanism available for the speedy resale of these

16 stocks. This allows them to realize capital gains and to obtain liquidity independently of the payout policy of the company. Provision of a resale mechanism is the function of the stock exchange (also known as the secondary market). Investors are able to buy and sell stocks through the stock exchange. Investors trade between themselves on these exchanges. The company is not a party to the transaction and receives no funds as a result of these transactions. Conversely, investors can liquidate their investments for consumption purchases without forcing the company to liquidate investments. This feature of a secondary market is crucial for economic development: companies can plan their investment policies independently of the consumption patterns of their investors.

In Initial Public Offering (2005:29) a study of 1,526 IPOs from 1984-1995 performed by Charles J. Kaplan (1997) found that from opening to close of the first trading day, IPOs produced an average return of 16.4 %. Kaplan also found that for three years after the IPO, for over 80% of the stocks, the valuation underperformed market expectations. He concludes, in fact, that on average an investor would have been ended up with only 83 cents compared to a dollar invested in the similar non IPO firms.

There is no formula or universal rule to determine whether a company is sufficiently large, mature, or profitable to go public, but a review of recent successful offerings illuminates some useful generalizations about what investor look for in a newly public company.

17 a. Size

Underwriters have their own rules of thumb, based primarily on revenue and net earnings, for what constitutes adequate company size to support a public offering. Today, however, size is often measured in terms of market capitalization or float.

If a company appears to lack the sales volume or the earnings to support a successful public offering, there are other avenues to explore. Management might look for another company in the same industry that also is too small for an IPO. The result could be an amalgamated company whose combined assets, earnings, and management make a public offering feasible.

b. Growth

Underwriters and investors look for a consistent record of high growth as well as demonstrated potential for continuing that growth in the future. That means growth of 15 to 25 percent per year for the next several years. Unless a company has that kind of momentum going when it goes public, investor will turn to more promising opportunities and offering may fizzle. An innovative product, significant market share, or proven potential in a new market that is part of an emerging industry all contribute to the company’s real and perceived prospects for growth.

18 c. Profitability

Many companies that have successful IPOs have a track record of stable revenue and earnings. In exceptional cases where companies have excellent earnings trends lines, investors may trade off prospects for exceptional growth and price appreciation for lower risk and reliable dividend stream.

There are no hard-and-fast rules. Each company must evaluate its present circumstances and its prospects, bearing in mind that few elements in overall picture will impress the investor as much as momentum. Nevertheless, every year, start-up companies in “glamour” or “hot” industries go public. Many of these companies have never posted a profit. Some have never even reported revenues.

Although a positive trend line is optimal, it certainly is not always necessary. Even mature companies with aberrations in their earnings trends have successfully executed their IPO strategies, particularly if the aberration was caused by some unusual, one-time, or nonrecurring change that is unlikely to affect future operating result. In the final analysis, the critical success factor is not short-term earnings but the ability to sustain financial performance over the long term.

19 d. Management Capabilities

Underwriters and investors carefully consider size, growth, and profitability in evaluating a company but weaknesses in any of these areas will not necessarily preclude a public offering. The issue on which underwriters and investors are most reluctant to compromise is management strength. Strong management thus translates into the most important intangible element in any IPO investor confidence.

Senior executives must be painfully honest in analyzing whather they can comfortably adjust to public scrutiny of their actions on behalf of the company. Are they ready to cope with the inevitable loss of freedom and privacy? Are they ready to admit outsiders to the decision-making process? Do they have the leadership capability to grow as the company grows?

Go Public is a public offering to sell the stock in stock exchange, company has to fulfill these requirement:

a. Financial report has to be corrected by Public Accountant that has been listed in Bapepam and get fair opinion without exception for the last annual year

20 c. Compulsory to listing all stocks that has been fully stored, as long as

not contradict with provision about stock belonging presentation by foreign investor.

d. Company has been established and operated minimal for 3 years e. In the late two years, company get operating income and net income. f. Has total wealth minimum 20 billion rupiah, own capital Rp 7.5

billion and stored capital minimum Rp 2 billion

g. Commissioner and directors of the company has to be in good reputation

5. Financial Reporting

The prospectus for the company’s IPO generally include audited financial statements for the previous three years, although that requirement is reduced in certain circumstances, such as for small business issuers under Regulation S-B. It also may require selected financial information for the previous five years. These disclosure requirements apply only for years the company has been existence. (Kleburg P. Richard: 2005)

A company will not be allowed go public if its financial statements have not been audited. Sometimes, two- or three-year audits can be performed in anticipation of a public offering but these may cause unforeseen delays and turn up unexpected adjustments to earnings.

21 Public companies are subject to certain SEC disclosure requirements, such as specified data by industry segment. To prepare for these disclosures, the company should fine-tune its financial reporting system to provide the necessary data, which should in any case be reviewed by the auditor. Many internal reporting system already provide industry segment data in some form, but the method they use may not correspond to the one prescribed by the SEC or by Statement No. 14, “Segment Reporting” issued by the Financial Accounting Standards Board (FASB). By making the necessary changes in accounting practices early, the company can avoid the inconvenience of having to implement then when they will distract from the IPO, or, worse, having to delay the offering

A company also can run into problems if in the two three years preceding a public offering, it acquires a significant business that saw not previously audited. Because the financial statements of unaudited subsidiaries affect the consolidated financial statements, and also because of the SEC requirement of separate audited financial statements for significant acquired companies, a company that makes such an acquisition may not be able to go public until the needed audits done. Any company that is planning a public offering of securities in the next two or three years will want to keep SEC audit requirements in mind when considering any acquisitions.

22 Many private companies have annual audits even if they are not otherwise required. This puts them in a position to go public on the short notice. An audit improves the credibility and reliability of the company’s financial statements and will help in dealings with external lenders and suppliers and improve internal management.

Another benefit is that an independent auditor who is knowledge-able about the business may come up with creative solutions to the business needs of the company. These ideas, whether communicated in personal meeting or in management letters, can lead to cost-effective ways to improve internal controls. Effective and timely internal financial reporting and a good system of internal controls may be crucial for public companies but they are also highly important for a private company.

In addition to their professional and advisory services, the auditors will help determine whether the accounting practices used are appropriate for a public company. Sometimes, SEC interpretations of GAAP may necessitate a change in accounting practices and disclosures by a company about to go public. Alternatively, companies may desire to conform their accounting policies to those more commonly used by other public companies in their industry and thereby to enchance the value of the IPO. By making the necessary changes early, a company can avoid the distractions of having to do so as it goes

23 public. Such changes may also have tax implications that need to be taken into account.

Once the company is publicly held, the SEC sets limits in the sale of “restricted” stock, generally shares issued in private placements and shares held by controlling shareholders. Existing shareholders may sell any portion of their holdings without technical restriction as part of the IPO the only “restriction” then is a practical concern that the offering not be perceived as a bailout of existing shareholders. However, if one of the goals of the public offering is to make shares of controlling shareholders salable in aftermarket advance planning can reduce the impact of these SEC restriction (Hensler, Rutherford and Springer, 1997) put in initial public offering by Richard P. Kleeburg (2005: 35)

Initial public offering pricing fixed based on agreement between emittent company with underwriter. Important role of underwriter is fixed the public offering price. For considering stock price fairness, underwriter have to pay attention how big the basic of company power, how much the demand of stocks that will be offered and how big the power and weaknesses of market today. Underwriter have to set the fair price for issuers and also attracted for investor (Dalton, 1993) put in Bodie Zvi, Alex Kane, and Alan J. Markus (1996:243)

24 There are two things that need to get issuers attention in doing public offering for the stocks, which is when the offering will be did and in what price the stocks will be offered. Both factors determine the succeed of issuers get the fund in capital market which signed with selling all offered stocks (Shahaluddin Haikal, 1996)

Settlement of company stock price is a point that determine in get the fund from stock public offering in initial market which is known as (Initial Public Offering). In this step, company hasn’t have guidance about beneficial capital market price for issuer or investor. Stock value have to refer to the real company value and monetary value which wished will be got from IPO based company capitalization. To determine stock value, emission guarantor do earlier scoring which usually compared with similar company emission which listed in stock exchange. Rating will be done with deeper analysis of financing projection of issuer candidate.

Stock price settlement in prospectus in huge amount that have to paid by investor in stock offering time with using offering buying form through appointed bank. Settled stock price in offering period is the real amount that has to be paid by investor. If there is a differentiate of stock price with the highest limit settled in offering, so there will be cash back after maturity.

25 Determination of initial price is a the most difficult matter for issuer and issuer guarantor. If the price is too high, so the stocks wont be fully sold out, otherwise if the price is too low, the share holder face the possibility of loss.

Determination of initial stock price hasn’t done through supply and demand mechanism which proceed through auction opening in stock exchange, but done together between emission guarantor and issuer trough negotiation process. Initial stock price valuation theoretically can be measured with using these analyses:

a. Income approach

Stock intrinsic approach determined based on payback period from stock infestation which determined using fairness ratio from capital market and earnings per share which known with Price to Earnings Ratio (PER), with this formulation:

PER: stock price: earning per share

In this appraisal model first issuer determine the wanted PER and next multiply with EPS projection at that year.

b. Net Tangible Assets Approach (NTA)

In this approach, the value of stock determined by net asset company divided of issuing shares. Net that recognized by listed company in financial report or company balance sheet. NTA can be calculated using total of net asset (outside intangible asset) minus

26 total of liability divided the issuing stocks. Explanation of intangible asset is capital asset that has no physical appearance and the value dependant to the right in their holder.

For doing analytic and choosing stock there are two approaching which are, Fundamental Approaching and Technical Approaching.

a. Analytic Approaching

Technical analytic is a study about action market supported by certain graphic. This analytic is made by seeing market price, market fluctuation, also estimation with using pattern that made by graphic and or mathematic calculating about past price movement can be predict for the future price (Ahmad Rodoni, 2008:62).

b. Fundamental Approaching

This approaching is analytic which done toward that company which related with prospectus and ability to get profit which including three analytic steps, which are (1) macro economy (2) industry and (3) company (Ahmad Rodoni, 2008:70).

Fundamental analytic trying to estimate future stock price with:

27 1) Estimating value of fundamental factors which

influencing future stock price.

2) Applied those variable relationship so get the estimation stock price.

This model often called as share price forecasting model, and often used in Securitas analytic (Suad Husnan, 2008:307).

Initial stock price settlement not merely measured by calculation of fundamental data of a company and also considering ability of capital market when general offering. Nonetheless initial stock price settlement has to be encouraged with calculation of issuer financial fundamental data.

Fundamental Factor :

a. Company Characteristic

According (Ahmad Rodoni, 2008:70) said that this analytic aimed to see company situation for company aspect like company financial condition, marketing condition, production and marketing.

1) Return on Assets (ROA). This ratio is used to measure asset efficiencies that used by company to produce profit. This ratio is calculated with dividing available net profit for shareholders with total asset.

28 2) Asset Turn Over (ATO). This ratio is used to show the efficiency level of und using which restrained in asset. This ratio is calculated with comparing between net sales with company total asset.

3) Price to Earning Ratio (PER). This ratio is used to show how big the investor gets per rupiah from reported profit. This ratio is calculated with comparing between stock price to earnings per share.

4) Market to book ratio (MBR). This ratio give indication about how investor appreciate stocks of a company. This ratio comparing between earning per share to book value per share.

5) Price to Sales Ratio (PSR). This ratio is used to showing how big investors want to pay per rupiah from reported selling. This ratio comparing between market value of total shares to selling.

b. Industry

This analytic is more specific and aim to see the relation of industry to company, like the development of competitor. Industry standard and market growth (Ahmad Rodoni, 2008:70)

Besides, there are some ratios which is publicized in financial report which is required by Indonesia Stock Exchange as

29 additional information in financial report: price to Earning Ratio (PER), Price to Book Value (PBV), Dividend Payout, Dividend yield, Current Ratio, Debt to Equity Ratio, Leverage Ratio, Gross Profit Margin, operating Profit Margin, Net Profit Margin, Inventory Turnover, Total Assets Turnover, Return on Investment and Return on Equity.

According Sunariyah (1997; 85-100) for analyze stock price and infestation in stock can be used 2 approaching, which are traditional approaching and modern port folio management. Traditional approaching consist of 2 approaching which are technical and fundamental approaching (this approaching is same as one that explained by Suad Husnan). Modern portfolio approaching pushed in exchange psychology aspect with hypothesis assumption about exchange which is market efficient hypothesis. Efficient market means that stock prices reflecting whole information in exchange. This approaching needs accurate analysis, therefore needs framework. Framework is an analysis step that has to be done systematically which consists of 3 analysis steps which are:

a. Economic analysis

Economic analysis aiming to know the kind also business prospect of a company. Economy activity will influence

30 company profit. If economic growth of a country is low, generally achieved profit of a company also low. In economic analysis many variables has macro characteristic like: national income, monetary policy and fiscal, interest rate and etc.

b. Industry Analysis

In Industry analysis we have to know the strengths and weaknesses of relevant economy. Adequate knowledge about industry dynamic from relevant company will help analyst or investor in doing industry analysis. The referred of company analysis is group of homogenous company.

c. Company analysis (issuer)

The proposed company analysis to knowing the company performance. Investor needs relevant information about company as a basic invest decision. That information include external and internal information of a company, which are information about financial period in a certain period. Besides, solvency can be analyzed, profitability and liquidity of a company. Other important information is expected information about financial projection or forecasting. Reminds that information necessity based on consideration that stock price determined by past company performance or future expectation.

31 6. Financial Ratios

According to Chunhui Liu and Grace O’Farrell (2009;5) Ratio analysis is an integral part of the analysis of financial statements, which is a critical step before makin g any foreign investment (Reuvid & Li, 2000), because it quantifies a company’s performance in many aspects such as the company’s ability to make a profit (profitability), ability to pay off debts due within a year (liquidity), ability to pay off debts due after a year (solvency or stability), and the ability to manage financial resources (activity or efficiency).

According to Mas’ud Machfoedz (1994;12) there are nine financial ratios those can be used to predict future profit significantly.

Those nine ratios are:

a. Cash flow to current liabilities

Is a measurement of a company’s ability to cover current liabilities. A value of one would indicate the company can cover its current liabilities with cash flow and as a “rule of thumb” a value of one over desired. If the operation cash flow to current liabilities ratio keeps increasing, it may indicate the cash inflows are increasing and needs to be invested. The operation of cash flow to current liabilities ratio is included in the financial statement ratio

32 analysis spreadsheets highlighted in the left column which provide formulas, calculation, charts and explanation of each ratio.

The formula is:

CCFL = × 100 %

b. Net Worth and Total Liabilities to fixed assets (NWTLFA) In business, net worth (sometimes called net assets) is the total assets minus total outside liabilities of an individual or a company. For a company this is called shareholders preference and maybe referred to as book value. Net worth is stated as at a particular year in time. In the case of an individual, the term estate is used in relation to decease individuals in probate. For businesses, the term is used in the context of fraudulent law and on the dissolution of the company. In personal finance, net worth (or wealth) refers to an individual’s net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities

NWTLFA = × 100 %

c. Gross Profit to Sales (GPS)

In accounting, gross profit or sales profit is the difference between revenue and the cost of making a product or providing a

33 service , before deducting overhead, payroll, taxation and interest payment. This ratio shows the portion of profit which get from the selling effort. Bigger the ratio, so the profit would be higher from the sold effort.

GPS = × 100 %

d. Net Income to Sales (NIS)

This ratio shows the portion of net profit which get from company’s sells. Higher the ratio is, bigger the net profit which got from the sales.

NIS = × 100 %

e. Operating Income to Total Liabilities (OITL)

This ratio shows profit portion of a company to the total liability. Higher the ratio is, the profit that comes from main business company to the liability also higher.

OITL = × 100

f. Net Worth to Sales (NWS)

This ratio shows profit portion of their self capital for the sales that happen in a company. Higher the ratio is, higher the net worth to company sales.

34 g. Net Income to Total Liabilities (NITL)

This ratio shows the net profit portion to the total liabilities. Higher the ratio is, higher the net profit that get from company total liabilities.

NITL = × 100%

h. Net Income to Net Worth (NINW)

The ratio shows the net income portion to the net worth. Higher the ratio is, the expectation of owner to get profit also higher.

NINW = × 100 %

i. Net Worth to Total Liabilities (NWTL)

This ratio shows the portion of company owner importance to total liabilities of third parties. Higher the ratio is, the portion of net worth could be higher.

NWTL = × 100%

Financial ratios have some usefulness in predicting the company situation. Which are:

a. Comparison Performance

Financial ratio can be used as in two different but equally useful ways. You can use them to examine the current performance of your company in comparison to pass period of

35 time, from the prior quarter to years ago. Frequently, this can help you to identify problems that need fixing. Even better, it can direct your attention to potential problems that can be avoided. In addition, you can use these ratios to compare the performance of your company against that of your competitors or other members of your industries (ziosbank 1999:5).

b. Risk and Return Investment

As financial ratios are used extensively in the corporate financial reports, it is now a common understanding that if corporate financial reporting is to be adequately supportive of investment decision making, then clearly it must provide information useful to the information of risk and return investment (farelly, et al.,1985) taken from Richard P. Kleeburg (2005:25).

In Richard P. Kleeburg (2005:12) there is a statement from (Ritter (1991), and Loughran and Ritter (1995)said that firms conducting initial and seasoned equity offerings have historically experienced relatively low long-run equity returns. Additionally, these returns covary with firm characteristics such as size and book-to-market (Brav and Gompers (1997) and Brav, Geczy, and Gompers (2000)). Two explanations for these

36 phenomena have been offered. The first is predicated on rational investor behavior and argues that the low average returns are commensurate with the issuing firms’ risk characteristics, as captured, for example, by size and book-to-market. The second argues that firms are able to time their equity offerings and raise capital by selling overvalued equity. Thus, the poor long-term performance of the equity issues reflects the gradual correction of asset prices to their true fundamental value and any correlation with firm characteristics is more indicative of security mispricing, as opposed to additional dimensions of systematic risk.

Firms conducting initial and seasoned equity offerings have historically experienced relatively low long-run equity returns. To date, there is lack of consensus as to whether low average returns are due to mispricing or that these returns rationally reflect the risk characteristics of the issuing firms. By examining how institutional lenders perceive the risk of issuing and non-issuing firms we are able to shed new light on this issue. We have examined how institutional lenders perceive the risk of equity-issuing firms relative to non-issuing firms by focusing on the pricing and contract structure of loans to these two groups of firms. We find, first, that equity-issuing and

37 otherwise similar non-issuing firms face comparable yields on their loans, even after adjusting for default risk and accounting for potential endogeneity between the various components of the loan contract. (Alon Brav : 2006)

c. Earning Change

In Mujeeb-u-Rehman-Bhayo (2011:2) there is a statement from Jordan et al. (2009) and Ou and Penmen (1989) found that a larger proportion of the variation in E/P ratios among companies is explained by traditional financial statement ratios. Published financial statements are a principal source of firm-specific information concerning the result of a firm‟s wealth creating activities (i.e., sales, production, investment and financing activities). These financial statements present extensive and low-cost information that assists external monitoring by outside stakeholders such as shareholders and banks, and provide a foundation for various contractual arrangements such as private lending agreements and employment contracts.

d. Future Earning

The stock price and the earnings per share determine the value of the ratio. P/E increases when investors are willing to pay more per unit of earnings while the earnings remain stable.

38 P/E also grows when both the stock price and the earnings per share increase, however, the increase of stock price must be sharper than the increase in the earnings per share. Another scenario of increasing P/E take place, when stock price remain stable despite there is a decrease in the earnings per share. The price earnings ratio does not change when there is a balance between the growth of the stock price and the earnings per share. (Marian Vorek :2009)

e. Company Failure or Bankruptcy

Bankrupt firms has indicated their worse financial position for a considerable time before they actually went bankrupt It is widely believed that profitability and liquidity ratios can predict bankruptcy to a certain extent I also proved that the Japanese bankrupt firms had indicated their worse financial position for a considerable time before they actually went bankrupt (Cindy Yoshiko Shirata: 1998)

"Failure" is defined as the inability of a firm to pay its financial obligations as they mature. Operationally, a firm is said to have failed when any of the following events have occurred: bankruptcy, bond default, an overdrawn bank account, or nonpayment of a preferred stock dividend.

39 A "financial ratio" is a quotient of two numbers, where both numbers consist of financial statement items. A third term, predictive ability, also requires explanation but cannot be defined briefly. The emphasis upon financial ratios does not imply that ratios are the only predictors of failure. The primary concern is not with predictors of failure per se but rather with financial ratios as predictors of important events-one of which is failure of the firm. Further, the primary concern is not with the ratios as a form of presenting financial-statement data but rather with the underlying predictive ability of the financial statements themselves. The ultimate motivation is to provide an empirical verification of the usefulness (i.e., the predictive ability) of accounting data (i.e., financial statements) (William H. Beaver : 1966)

The next task was to identify those firms in Moody's that had failed during the time period being studied (1954 to 1964, inclusive). In the front of Moody's there appears a list of firms-firms on whom Moody's has formerly reported but no longer does so. There are many reasons why a firm; may be dropped-name change, merger, liquidation, lack of public interest, and, most importantly, failure. The list of several thousand names was condensed into a list of firms that had failed.

40 Supplementing this basic list was a list of bankrupt firms provided by Dun and Brad- street. The final list of failed firms contained 79 firms on which financial- statement data could be obtained for the first year before failure (William H. Beaver : 1966)

f. Offering Price

Once we control for IPO fundamentals (such as, income, sales, book equity, growth opportunities, insider retention, and investment banker prestige) and allow for different valuation of these fundamentals across different time-periods,average valuations of IPOs in the recent boom and crash periods were not statistically different from those of the late 1980s. A naïve interpretation of this result would be that valuations of the IPOs in the late nineties were not excessive compared to the late eighties. We would caution against such an interpretation, since we find that fundamentals, especially income and sales, were valued quite differently in the late nineties.

7. Previous Research

Liquidities ratio attempts to measure a company’s ability to pay off its short term liabilities the better as it is a clear signal that a company can pay its debt that are coming due in the near future and fund still in its ongoing operation. On the other hand, a company with a low coverage rate

41 should rise a red flag for investor as it may be a sign that a company will have difficulty meeting in running its operations, as well as meeting its obligations. (investopedia 2010;2)

Lubika Lesakova (2007;3) management wants to increase its ROE, and we have presented three important levers of financial performance: profit margin, asset turn over, and financial leverage. We concluded that whether company is a big one or small one, careful management of these levers is a challenging managerial task, involving an understanding of the nature of the company’s business and the interdependencies among the levers.

Lubika Lesakova (2007;3) thought ratio analysis can provide useful information concerning a company’s operations and financial condition, it has some limitations. Potential problem are listed below:

a. Many large firms operate a number of different activities in quite different industries, and in such cases it is difficult to develop a meaningful set of industry averages for comparative purposes. This tend to make ratio analysis more useful for small, narrowly-focused firms than for large, multidivisional firms.

b. Most firms want to be better than average (although half will be above and half below the median), so to attain average performance is not

42 necessarily good. As a target for high level performance, it is preferable to look at the industry leaders ratio.

c. Inflation can badly distort firms balance sheet –recorded values are often substantially

An initial public offering (IPO), referred to simply as an “offering” or flotation”, is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large

privately owned companies looking to become publicly traded

(Wikipedia:2010).

Current profitability and cash flow realizations provide information about the firm’s ability to generate funds internally. Given the poor historical earning performance of value firms, any firm currently generating positive cash flow or profits is demonstrating capacity to generate funds through operating activities. Relationship between earning and cash flow levels is also considered, earnings driven by positive accrual adjustment is a bad signal about future profitability and returns. (Sloan:1996)

Sanjai Bhagat and Srinivangans Rangan (2001:8) there are statement from Kim and Ritter (1999), hereafter KR, investigate the relation between firm-level price earnings (PE) ratios and the industry-median PE ratios for a

43 sample of 190 IPOs completed in the years 1992-1993. KR document that firm-level and industry-level PE ratios are positively related, but that the adjusted R2 of their regression is only five percent. Their model’s explanatory power improves when they consider forecast earnings for the next year instead of pre-IPO historical earnings. They conclude that industry comparables based on historical accounting information are of limited value for understanding IPO pricing.

In Sanjai Bhagat and Srinivangans Rangan (2001:9) there are statement from Beatty, Riffe, and Thompson (2000), hereafter BRT, question KR’s conclusion regarding the low relevance of historical accounting information in the pricing of IPOs. Because KR use only industry multiples in their regression, their model captures only time and industry variation in pricing relations and thus does not speak to the value relevance of firm-specific accounting information. Using a sample of 2,577 IPOs with positive pre-IPO income and positive book value of equity from the years 1987-1998, they document that the explanatory power of earnings, book value, and revenues for offer value is about fourteen percent. Also, they find that when all the variables in their model are deflated by book value of equity or sales or when all variables are log-transformed, the model’s explanatory power ranges from sixty percent to ninety percent.

In Sanjai Bhagat and Srinivangans Rangan (2003:10) there is a statement from Hand (2000) examines a sample of 116 internet IPOs from the

44 years 1997-1999 whose pre-income book value of equity is positive and income before non-recurring items is negative. Using a logarithmic specification, he finds that IPO valuation (based on offer price and first-day closing price) is positively and linearly related to the pre-income book value of equity, but negatively and concavely related to income before non-recurring items. Consistent with the argument that large R&D and marketing costs are intangible assets and not period expenses, he documents that offer values are increasing and concave in R&D and marketing costs. Further, IPO values are unrelated to sales and cost of goods sold expenses.

In Sanjai Bhagat and Srinivangans Rangan (2003:8) there are statement from Bartov, Mohanram, and Seethamraju (2002), hereafter BMS, focus on the valuation of 98 internet IPOs and 98 offer-date and size-matched non-internet IPOs that were completed during 1996-1999. Their conclusions are based on per share regressions. For internet IPOs, they find that cash flows, sales, and sales growth are significantly related to offer prices (at the filing date and at the offer date). In contrast, earnings, book value of equity, and R&D per share do not bear a significant relation to offer prices. 7 When they consider first-day closing prices, they find that, with the exception of sales growth and R&D per share, investors do not value the financial statement variables reported by internet firms.

In Wan Nordin Wan Husen journal (2006:4) there is study from Claessens et al. (2002) show that based on 1996 data on eight East Asian

45 countries, higher cash flow rights attached to the largest controlling shareholders are associated with a higher market valuation, measured by the market-to-book ratio of assets. In contrast, higher control rights are associated with a lower valuation. Furthermore, a large wedge between cash flow rights and control rights leads to value losses.7 In sum, the results suggest that (1) there is a positive incentive effect associated with high cash flow rights in the hands of the controlling shareholders and (2) the risk of expropriation is particularly severe when the discrepancy between cash flow rights and control rights is high. When the sample is segmented based on the types of ultimate owner (family-controlled, statecontrolled, widely held financial institution or widely held corporation), the results on expropriation are found to be strongest for family owned companies, moderate for state–controlled companies and negligible for widely held corporations

46 8. Logical Framework

Figure 2.2 : Theoretical Framework Sam pling Process

Dependent Variable Independent Variable

Init ial Public Offering Financial Rat ios (CFCL, NWTLFA, GPS, NIS,

OITL, NWS, NITL, NINW, NWTL)

Calculat e based on operat ional variable

Calculat e based on operat ional variable Regression M odel

Y = = α + βCFCL1+ βNWTLFA2+ βGPS3+ βNIS4+ βOITL5+ βNWS6 +

Regression m odel t est Hypot hesis t est

Analysis Conclusion

47 Figure 2.2 : Initial Public Offering Model

IPO

CFCL

NWTLFA

GPS

NIS

OITL

NWS

NITL

NINW

48 9. Hypothesis

Hypothesis have been developed for this study based on dependent and independent variables are given below:

H1: Cash Flow to Current Liabilities has an influence toward Initial

Public Offering

H0 : Cash Flow to Current Liabilities doesn’t have an influence

toward Initial Public Offering

H2: Net Worth and Total Liabilities to fixed Asset has an influence

toward Initial Public Offering

H0 : Net Worth and Total Liabilities to fixed Asset doesn’t have an

influence toward Initial Public Offering

H3: Gross Profit to Sales has an influence toward Initial Public

Offering

H0 : Gross Profit to Sales doesn’t hav an influence toward Initial

Public Offering

H4: Net Income to Sales has an influence toward Initial Public

Offering

H0 : Net Income to Sales doesn’t have an influence toward Initial

49 H5: Operating Income to Total Liabilities has an influence toward

Initial Public Offering

H0 : Operating Income to Total Liabilities doesn’t have an influence

toward Initial Public Offering

H6: Net Worth to Sales has an influence toward Initial Public

Offering

H0 : Net Worth to Sales doesn’t have an influence toward Initial

Public Offering

H7: Net Income to total Liabilities has an influence toward Initial

Public Offering

H0 : Net Income to total Liabilities doesn’t have an influence

toward Initial Public Offering

H8: Net Income to Net Worth has an influence toward Initial Public

Offering

H0 : Net Income to Net Worth doesn’t have an influence toward

Initial Public Offering

H9: Net Worth to Total Liabilities has an influence toward Initial

Public Offering

H0 : Net Worth to Total Liabilities doesn’t have an influence toward

50 CHAPTER III

METHODOLOGY

A. Data Collection Method

A type of data used is secondary data. Data is used in this study were obtained from financial report those gotten from Indonesia Stock Exchange.

B. Research Scope

This research is quantitative data used are secondary data. The sample used was data from the initial public offering (Y), and financial ratios (X) with sub variables are Cash Flow to Current Liabilities (X1) , Net Worth and Total Liabilities to Fixed Assets (X2), Gross Profit to Sales (X3), Net Income to Sales (X4), Operating Income to Total Liabilities (X5), Net Worth to Sales (X6), Net Income to Total Liabilities (X7), Net Income to Net Worth (X8) and Net Worth to Total Liabilities (X9).

In this research will be used ratio that was used by previous research (Mas’ud Machfoedz) which 9 ratios where the ratios have significant influence to predict company future profit. Those ratios are Total Go Public company that listed in Stock exchange Jakarta are 422 companies which divided into some sectors, among them are banking

51 sector. Companies in banking sector are 31 companies, for this research limited to companies from banking sector which is go public from 2006-2009 for only 10 companies.

C. Variable Definition and Measurement of Operational

In this analysis the dependent variable (y) is initial public offering, while independent variable (x) is financial ratios. Formula in this research is:

Initial Public Offering = α + βCFCL1+ βNWTLFA2+ βGPS3+ βNIS4 +

βOITL5+ βNWS6 + βNINTL7 + βNINW8+ βNWTL9 + +

ε

_it

;

Where:

a) A = Constants

b) B1, b2, b3, b4, b5, b6, b7, b8, b9 = Coefficient

c) CFCL = Cash Flow to Current Liabilities

Ratio

d) NMTLFA = Net Worth and Total Liabilities

to Fixed Asset Ratios

e) GPS = Gross Profit to Sales Ratio

f) NIS = Net Income to Sales

g) OITL = Operating Income to Total

52

h) NWS = Net Worth to Sales Ratio

i) NITL = Net Income to Total

Liabilities Ratio

j) NINW = Net Income to Net Worth Ratio

k) NWTL = Net Worth to Total Liabilities

Ratio D. Population and Sample

Method that will be used is purposive sampling which is means population that will be used as research sample is population that filled the certain sample criteria according to what researcher wants and chosen sample will be selected tightly so become relevant with research pattern. Researcher will try in order to inside the sample there is representative from every kind of population.

Thus, it is important for sample have essential characteristic, what strata that should be represented, depend to scoring or consideration from the researcher. This technique is chosen in order the result more accurate.

Criteria for sample consideration are:

1. Go public company which is noted as banking institution 2. Have a financial report for 2006-2009

53 1. Sampling Technique

Data resource is also one of the most important of this research. Characteristic variable data of company and industry is gotten from stock exchange Indonesia which runs in banking sector. Supporting data also gotten from internet.

Industry variable is kind of industry and measurement of industry. Industry variable is differentiating between manufacture industry and non manufacture. For industry scale differentiate between big industry and small industry which is grouped based on score and company total asset (Robiatul Auliyah, 2006:8)

Sampling method that will be used in this research is secondary sources. This secondary sources is done for supporting the material in the research explanation. This research is also done with gathering information through books, journals, and other literature that related and support this research. Necessary data in this research are companies’ data that listed in Indonesia Stock Exchange and runs in banking sector.

E. Data Collection Techniques

In gathering the needed data for research, writer does have two kinds of studies:

54 1. Data Collection

This is done with studying the literatures, books, magazines or articles which encourage which is done and support the theories that is used in this literature review.

2. Field study

Field study is done with visiting to Jakarta Stock Exchange to get the needed data in this research.

This data analysis will be used in this research is regression analysis. With regression analysis will be known the influence of financial ratio to initial stock price.

F. Classic Assumption Test

This test is done or meant for knowing the existence or no multicallinearity, Heteroscedasticity and autocorrelation. Classic test assumption is done before analyze regression data panel model. If there is a misused to assumption, T test and F test which is done become not valid and statistically can disturb the conclusion that we get.

1. Heteroscedasticity

Heteroscedasticity is happened if variance not constant or unstable. Nachrowi (2006:113), there is some techniques to overcome the

55 Heteroscedasticity problem, one of the technique that can be used is with using GLS (Generalized Least Square) method.

GLS ( Generalized Least Square) method which is the point is giving the existence to data variance which used to square variance from the model so can be said with using GLS Heteroscedasticity problem can be overcame.

2. Autocorrelation

Autocorrelation happen if disturbance value in certain period related to the earlier value disturbance. The well known test for detect autocorrelation is test that developed by Durbin Watson, known as statistic d Durbin Watson (Gujarati 2007:119). From the rules can be seen in table 3.

Table 3.1

D test Durbin Watson: decided rule

Null Hypothesis Decided If

No Positive Autocorrelation Reject 0 < d < dL

No Positive Autocorrelation Neutral dL < d < du

No Negative Autocorrelation Reject 4 – dL < d < 4

No Negative Autocorrelation Neutral 4- du < d < 4 – dL

No Positive/Negative Autocorrelation Not Rejected du < d < 4 – du

56 G. Hypotheses

After get the best data analysis panel model, next is do significance test to independent variables. Aim from this significance is a coefficient value regression which is statistically in equivalent with null (Nachrowi, 2006:16).

1. T Test

Individual regression coefficient test with using a tes is known as T test (Nachrowi, 2006:18)

T Test steps:

a. Defining Ho and Ha

Ho : βi = 0 (independent variable doesn’t has significance influence to dependent variable).

Ho : βi 0 (independent variable has significance influence to dependent variable)

i = 0,1, 2, 3, …., k ; k is slope coefficient 1) Defining level of significance

Level of significance which is used about 5% or (α) = 0,05 2) Defining T value (count t)

Defining t count (t-test) the formula is:

Model Summaryb

Model R R Square

Adjusted R Square

Std. Error of the Estimate

Change Statistics

Durbin-Watson R Square

Change F Change df1 df2 Sig. F Change

1 .609a .371 .182 746.272 .371 1.967 9 30 .000 2.025

a. Predictors: (Constant), NWTL, NWTLFA, NIS, NINW, OITL, CCFL, NITL, NWS, GPS b. Dependent Variable: IPO

Correlations and Tolerance

Correlations

Importance

Tolerance

Zero-Order Partial Part

After Transformation

Before Transformation

CCFL .085 .164 .092 .013 .716 .731

NWTLFA .260 .245 .139 .055 .906 .882

GPS .253 .593 .406 .253 .342 .095

NIS .236 -.070 -.038 -.019 .497 .123

OITL -.048 -.216 -.122 .012 .493 .721

NWS -.013 -.528 -.343 .017 .158 .292

NITL .517 .694 .532 1.124 .123 .266

NINW .305 -.573 -.385 -.478 .125 .258

NWTL .005 .473 .296 .005 .209 .541

NO NAM A PERUSAHAAN

CFCL

M EAN

2003 2004 2005 2006

1 Bank Agroniaga 0.012465864 -0.77441799 0.174784294 0.033809516 -0.13828512

2 Bank Bukopin 0.178363917 0.04604446 -0.05211501 0.5747453 0.04307334

3 Bank Bumi Art ha 0.010798374 -0.02792296 0.082608732 0.302887366 0.092092877

4 Bank Capit al 0.037498129 0.00696477 0.027249558 0.757578 0.023904152

5 Bank Ekonom i Raharja -0.03076170 0.056837832 0.220186013 -0.17564154 0.017655149

6 Bank Him punan Saudara 0.025462087 0.019965556 0.028685485 0.041221787 0.028833729

7 Bank Tabungan Negara 0.013178217 0.001755951 -0.00571409 0.020866985 0.007521764

8 Bank Tabungan Pensiunan 0.032754432 0.032880355 0.132909144 0.114796264 0.078335049

9 Bank Windu Kent jana 0.025562965 0.035014392 0.149812513 0.091065949 0.075363955

10 Bank Vict oria Int ernat ional 0.036185615 -0.02039338 0.004123002 0.046862339 0.016694393

M axim um 0.178363917 0.056837832 0.220186013 0.302887366 0.092092877

M inim um -0.03076170 -0.77441799 -0.05211501 -0.17564154 -0.13828512

M ean 0.03415079 -0.06232710 0.076252963 0.052874296 0.024518929

St d. Deviation 0.054398752 0.251700903 0.089535927 0.124686861 0.064388826

N 10 10 10 10 10

Source: m anaged dat a

NO NAM A PERUSAHAAN

NWTLFA _{M EAN}

2003 2004 2005 2006

1 Bank Agroniaga 212.7777294 25.94094169 0.132088352 0.100254099 59.73775339

2 Bank Bukopin 10.18164883 0.060650868 0.071162428 0.073382056 2.596711045

3 Bank Bumi Art ha 14.19660082 0.238212086 0.20849604 0.195230534 3.70963487

4 Bank Capit al 32.12863243 0.127775388 0.170750903 0.474763 16.13894779

5 Bank Ekonom i Raharja 155.9311686 0.098202318 0.10254877 0.119819119 39.06293469

6 Bank Him punan Saudara 612.0482228 0.11286924 0.117961029 0.137990363 153.1042609

7 Bank Tabungan Negara 100.2796034 0.082210392 0.073447821 0.101652465 25.13422851

8 Bank Tabungan Pensiunan 136.4007498 0.133873345 0.10073736 0.139160263 34.1936302

9 Bank Windu Kent jana 45.22911788 0.14295497 0.120678347 0.136033018 11.40719605

10 Bank Vict oria Int ernat ional 13.953676 0.103579478 0.093520579 0.077669678 3.557111434

M axim um 612.0482228 25.94094169 0.20849604 0.195230534 153.1042609

M inim um 10.18164883 0.060650868 0.071162428 0.073382056 2.59671104

M ean 133.312715 2.704126977 0.119139163 0.1201324 0.024518929

St d. Deviation 182.1806548 8.164723627 0.042790844 0.037581505 56.769875

N 10 10 10 10 10

NO NAM A PERUSAHAAN

GPS

M EAN

2003 2004 2005 2006

1 Bank Agroniaga 0.950691197 -35.3858123 1.148469641 1.277561292 -8.00227255

2 Bank Bukopin 1.704481986 1.687842843 1.608525897 1.667358581 1.667052327

3 Bank Bumi Art ha 1.49426153 1.611573013 1.55625367 1.469795767 1.532970995

4 Bank Capit al 1.990074539 1.737019634 1.747778257 0.7554367 1.824957477

5 Bank Ekonom i Raharja 42.1674148 6.936881704 42.49723005 1.654772032 23.31407464

6 Bank Him punan Saudara 1.567268296 1.491084346 1.41124497 1.488347043 1.489486164

7 Bank Tabungan Negara 1.66934723 1.648987336 1.511657486 1.480276402 1.577567114

8 Bank Tabungan Pensiunan 1 1.829248042 1.467087282 1.615291299 1.477906656

9 Bank Windu Kent jana 1.58698562 1.199301557 1.39541764 1.349446591 1.382787852

10 Bank Vict oria Int ernat ional 2.302077658 1.61363975 1.938242715 2.28779005 2.035437543

M axim um 42.1674148 6.936881704 42.49723005 2.28779005 23.31407464

M inim um 0.950691197 -35.3858123 1.148469641 1.277561292 -8.00227255

M ean 5.643260285 -1.56302341 5.628190761 1.587848784 2.829996821

St d. Deviation 12.83956743 12.00296092 12.95618807 0.293682281 7.809536614

N 10 10 10 10 10

Source: m anaged dat a

NO NAM A PERUSAHAAN

NIS

M EAN

2003 2004 2005 2006

1 Bank Agroniaga -0.07658281 -0.01051098 0.022248642 0.12661202 0.015441716

2 Bank Bukopin 0.43045418 0.420808084 0.364796423 0.325743261 0.385450487

3 Bank Bumi Art ha 0.313305419 0.371181692 0.34806118 0.299544236 0.333023132

4 Bank Capit al 0.68816714 0.432351312 0.48401855 0.4747847 0.534845667

5 Bank Ekonom i Raharja 13.35214048 0.160025672 15.56690141 0.485231279 7.391074711

6 Bank Him punan Saudara 0.743754358 0.337972752 0.280596822 0.348442378 0.427691578

7 Bank Tabungan Negara 0.380609352 0.372266937 0.060941011 0.336282342 0.287524911

8 Bank Tabungan Pensiunan 0.547017847 0.46535844 0.270171984 0.411496159 0.423511107

9 Bank Windu Kent jana -0.08377664 0.052686263 0.213184568 0.239229878 0.105331017

10 Bank Vict oria Int ernat ional 1.110996769 0.427108227 0.583319036 1.227442507 0.837216635

M axim um 13.35214048 0.46535844 15.56690141 1.227442507 7.391074711

M inim um -0.08377664 -0.01051098 0.022248642 0.12661202 0.015441716

M ean 1.74060861 0.302924839 1.819423963 0.422224896 1.074111096

St d. Deviation 4.095850977 0.171409541 4.833396849 0.318300898 2.230933844

N 10 10 10 10 10

NO NAM A PERUSAHAAN

OITL

M EAN

2003 2004 2005 2006

1 Bank Agroniaga 0.043819981 -1.05869575 0.031998767 0.010904686 -0.24299307

2 Bank Bukopin 0.067793116 -0.20168998 -0.03577875 0.845798349 -0.04241890

3 Bank Bumi Art ha -0.10335043 -0.10358544 0.003410984 -0.06920537 -0.06818256

4 Bank Capit al -0.69301209 -0.29112505 -0.54346256 0.8435786 -0.50919990

5 Bank Ekonom i Raharja -0.12431859 -0.13499060 0.236640478 -0.13674654 -0.03985381

6 Bank Him punan Saudara -0.30420144 -0.23200125 -0.09229750 -0.22103726 -0.21238436

7 Bank Tabungan Negara -0.08693554 -0.06931001 -0.18477094 -0.14111609 -0.12053315

8 Bank Tabungan Pensiunan -0.35278447 -0.17905183 -0.25020434 -0.25805026 -0.26002273

9 Bank Windu Kent jana -0.18194119 0.035015483 -0.12036763 -0.29470237 -0.14049893

10 Bank Vict oria Int ernat ional -0.42559971 -0.07512976 -0.23397729 -0.24610824 -0.24520375

M inim um -0.69301209 -1.05869575 -0.54346256 -0.29470237 -0.03985381

M aksim um 0.067793116 0.035015483 0.236640478 0.010904686 -0.50919990

M ean -0.34870241 -0.30289690 -0.20387244 -0.20847342 -0.18812912

St d. Deviation 0.232120668 0.3053067 0.207320043 0.115823235 0.141258615

N 10 10 10 10 10

Source: m anaged dat a

27 NAM A PERUSAHAAN

NWS

M EAN

2003 2004 2005 2006

1 Bank Agroniaga 0.74680398 0.904752604 3.520023676 2.511948831 2.447637592

2 Bank Bukopin 2.284348896 2.209594118 2.144551498 2.285623321 2.231029458

3 Bank Bumi Art ha 5.586040907 5.285305955 5.114880902 4.825879192 5.203026739

4 Bank Capit al 10.1863881 6.897421971 10.88249353 0.5489595 9.3221012

5 Bank Ekonom i Raharja 77.63842477 4.272122228 94.28497653 3.774516601 44.99251003

6 Bank Him punan Saudara 2.231104251 1.799700239 1.996528456 2.287891295 2.07880606

7 Bank Tabungan Negara -31.8413590 2.581118671 2.579402119 3.697831817 -5.74575160

8 Bank Tabungan Pensiunan 1.949895918 1.986317539 1.309859517 2.073804547 1.82996938

9 Bank Windu Kent jana 4.630040842 3.780683146 3.998514116 4.40883763 4.204518934

10 Bank Vict oria Int ernat ional 9.048050472 6.394963826 7.939465119 8.535588604 7.979517005

M EAN 8.456676039 3.61119803 13.37706955 3.82243576 7.45433648

M AXIM UM 77.63842477 6.897421971 94.28497653 8.535588604 44.99251003

M INIM UM -31.8413590 0.904752604 1.309859517 2.073804547 -5.74575160

STANDARD DEVIATION 27.05315095 2.057208677 28.58351436 2.033288724 8.4634624

N 10 10 10 10 10

NO NAM A PERUSAHAAN

NITL

M EAN

2003 2004 2005 2006

1 Bank Agroniaga -0.00230444 -0.03997613 0.000834877 0.005053198 -0.00909812

2 Bank Bukopin 0.010548217 0.011550708 0.012105002 0.010458289 0.011165554

3 Bank Bumi Art ha 0.01317077 0.016729394 0.014187892 0.012118037 0.014051523

4 Bank Capit al 0.011954422 0.008009349 0.007594455 0.5896976 0.009186075

5 Bank Ekonom i Raharja 0.013273957 0.015787402 0.016931293 0.015403293 0.015348986

6 Bank Him punan Saudara 0.046710652 0.021196156 0.016578522 0.021015723 0.026375263

7 Bank Tabungan Negara 0.011834101 0.011856956 0.00173528 0.009244317 0.008667664

8 Bank Tabungan Pensiunan 0.037187937 0.031364115 0.020778116 0.027612975 0.029235786

9 Bank Windu Kent jana -0.00280872 0.00199217 0.00643408 0.007381347 0.003249718

10 Bank Vict oria Int ernat ional 0.01018491 0.006917889 0.006871034 0.011169126 0.00878574

M EAN 0.014975179 0.0085428 0.010405055 0.013272923 0.011696818

M AKSIM UM 0.046710652 0.031364115 0.020778116 0.027612975 0.029235786

M INIM UM -0.00280872 -0.03997613 0.000834877 0.005053198 -0.00909812

STANDARD DEVIATION 0.015574501 0.018916126 0.006736421 0.007091479 0.010903489

K 10 10 10 10 10

Source: m anaged dat a

NO NAM A PERUSAHAAN

NINW

M EAN

2003 2004 2005 2006

1 Bank Agroniaga -0.02684 -0.00154 0.006321 0.050404 0.0070871

2 Bank Bukopin 0.188436 0.190446 0.170104 0.142518 0.1728761

3 Bank Bum i Art ha 0.056087 0.070229 0.068049 0.06207 0.0641088

4 Bank Capit al 0.067558 0.062683 0.044477 0.57947 0.0582391

5 Bank Ekonom i Raharja 0.171979 0.160764 0.165105 0.128555 0.1566005

6 Bank Him punan Saudara 0.333357 0.187794 0.140542 0.152298 0.203498

7 Bank Tabungan Negara -0.01195 0.144227 0.023626 0.09094 0.06171

8 Bank Tabungan Pensiunan 0.280537 0.234282 0.20626 0.198426 0.2298762

9 Bank Windu Kent jana -0.01809 0.013936 0.053316 0.054261 0.0258547

10 Bank Vict oria Int ernat ional 0.122789 0.066788 0.073471 0.143803 0.1017126

M EAN 0.116386 0.112961 0.095127 0.113697 0.1081563

M AKSIM UM 0.333357 0.234282 0.20626 0.198426 0.2298762

M INIM UM -0.02684 -0.00154 0.006321 0.050404 0.0070871

STANDARD DEVIATION 0.126242 0.080958 0.069479 0.051658 0.077503

N 10 10 10 10 10

NO NAM A PERUSAHAAN

NWTL

M EAN

2003 2004 2005 2006

1 Bank Agroniaga 0.085874 25.94094 0.132088 0.100254 6.564789599

2 Bank Bukopin 0.055978 0.060651 0.071162 0.073382 0.065293248

3 Bank Bum i Art ha 0.234827 0.238212 0.208496 0.195231 0.219191328

4 Bank Capit al 0.176952 0.127775 0.170751 0.65857 0.158492679

5 Bank Ekonom i Raharja 0.077184 0.098202 0.102549 0.119819 0.099438505

6 Bank Him punan Saudara 0.140122 0.112869 0.117961 0.13799 0.127235654

7 Bank Tabungan Negara -0.99003 0.08221 0.073448 0.101652 -0.18317930

8 Bank Tabungan Pensiunan 0.13256 0.133873 0.100737 0.13916 0.126582706

9 Bank Windu Kent jana 0.155228 0.142955 0.120678 0.136033 0.138723681

10 Bank Vict oria Int ernat ional 0.082947 0.103579 0.093521 0.07767 0.089429123

M INIM UM -0.99003 0.060651 0.071162 0.073382 0.740599722

M AKSIM UM 0.234827 25.94094 0.208496 0.195231 6.564789599

M EAN 0.015164 2.704127 0.119139 0.120132 -0.18317930

STANDARD DEVIATION 0.357298 8.164724 0.042791 0.037582 1.944014083

N 10 10 10 10 10