Corporate eligibility to conduct initial public offerings in Indonesia: an examination of the disclosure principle

In capital markets, disclosure is the main source of information for investors. One of the most important types of information in disclosure is information about a company’s legal non-compliance. Information about a company’s legal non-compliance is not only socially significant but also financially important as it may lead to hefty penalties, loss of contract and other economic effects. However, in contrast to financial information which is quantitatively measured, the consequences of non-compliance often involve a qualitative aspect making it difficult to articulate its materiality. This study is doctrinal legal research and it sets out to evaluate whether the enforcement by the Indonesian Financial Services Authority (OJK) of its disclosure policy on legal non-compliance is sufficient to protect the investing public. The study aims to mitigate the impact of information asymmetry due to incomplete disclosure of corporate legal non-compliance as well as to enhance corporate accountability to shareholders for company illegality. It argues that factors such as materiality, regulatory capture, and the roles of securities lawyers have been creating inconsistencies in OJK’s implementation of its legal non-compliance disclosure policy. The outcome of this study would be useful to articulate lessons for other developing capital markets, particularly those with conditions of legal uncertainty similar to those in Indonesia, in advancing the goal of disclosure.