Impact of Risk Factor Disclosure in Prospectus on IPO Performance: An Empirical Investigation

Abstract

This study demonstrates that Technological & Competitive Risk Factors have a significant positive relationship with each component of under-pricing. Operating Risk Category shows a positive impact on the level of under-pricing in the primary market. While the under-pricing in the secondary market is influenced by the Operating Risks as well as the Compliance Risks Categories, These risk categories differ greatly when analysing sector-wise influences on under-pricing due to variations in the structure and activities of distinct organisations. This study contributes to the understanding of the association between risk factor disclosure and IPO under-pricing by elucidating how the mutually exclusive risk factors may impact this relationship. It will add to the risk disclosure literature by providing a method for characterising the risk factor section of an IPO prospectus. The capacity to construct an accurate and measurable categorisation of the risk factor inside an IPO prospectus opens the door to a slew of new questions about the relationship between various aspects of IPO disclosure and economic results. It might also help practitioners to design more accurate and efficient IPO pricing methods.