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Uncertainty and IPO initial returns: Evidence from the Tone Analysis of China’s IPO Prospectuses

Author

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  • Yan, Yumeng
  • Xiong, Xiong
  • Meng, J. Ginger
  • Zou, Gaofeng

Abstract

IPO prospectuses play an irreplaceable role in the IPO process. The tone of IPO prospectuses, in terms of its definitiveness in characterizing the prospects and assessing the risks of different firms, could affect investors' capability to estimate the firms that are about to go public. In a large sample of 1320 IPO prospectuses of China's A-share market from 2007 to 2016, we find that uncertain or negative tone of IPO prospectuses is significantly associated with IPO initial returns and the post-IPO return volatility. Besides, empirical evidence shows that the negative or uncertain tone in the prospectuses lowers the stocks' long-term returns. Our findings contribute to the literature by investigating the impact of connotative information transmission on stock returns during IPO process, based on which investors can do a better job in risk management.

Suggested Citation

  • Yan, Yumeng & Xiong, Xiong & Meng, J. Ginger & Zou, Gaofeng, 2019. "Uncertainty and IPO initial returns: Evidence from the Tone Analysis of China’s IPO Prospectuses," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18302397
    DOI: 10.1016/j.pacfin.2018.10.004
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    Cited by:

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    2. Demir, Ender & García-Gómez, Conrado Diego & Díez-Esteban, José María & Farinha, Jorge Bento, 2023. "How does uncertainty impact IPO activity? International evidence," Finance Research Letters, Elsevier, vol. 58(PC).
    3. Wenbo Ma & Xinjie Wang & Yuan Wang & Ge Wu, 2021. "Measuring misleading information in IPO prospectuses," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 819-843, October.
    4. Ranganathan, Kavitha & Veeraraghavan, Madhu, 2023. "Pre-and-aftermarket IPO underpricing: Does use of proceeds disclosure matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    5. Bian, Shibo & Jia, Dekui & Li, Ruihai & Sun, Wujun & Yan, Zhipeng & Zheng, Yingfei, 2021. "Can management tone predict IPO performance? – Evidence from mandatory online roadshows in China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Dong, Dayong & Yang, Mo & Yang, Gaoju & Chen, Chang-Chih & Zhang, Xinyi, 2022. "Talk less and do more: Expected strategic adjustments vs. actual changes in the Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    7. Yang, Mo & Li, Yan & Dong, Dayong, 2023. "Strategic information disclosure and the cost of equity capital: Evidence from China," Finance Research Letters, Elsevier, vol. 51(C).

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