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Measuring misleading information in IPO prospectuses

Author

Listed:
  • Wenbo Ma

    (Southern University of Science and Technology)

  • Xinjie Wang

    (Southern University of Science and Technology)

  • Yuan Wang

    (Southern University of Science and Technology)

  • Ge Wu

    (University of Richmond)

Abstract

Newly public firms may provide misleading information about their business plans in their initial public offering (IPO) prospectuses. Using textual analysis, we develop a simple measure of such misleading information based on the difference between the emphasis placed on business lines in the main textual description and the corresponding information from the accounting tables. We examine our measure of misleading information using a sample of 1878 IPOs in China from 2010 to 2019. We find that the degree of misleading information is greater when firms find it more difficult to get regulatory approval for an IPO. Furthermore, the amount of misleading information is greater for firms with higher leverage and more segmented businesses. We also find some evidence that the stock returns of firms which present a greater amount of misleading information are lower.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:rqfnac:v:57:y:2021:i:3:d:10.1007_s11156-021-00964-7
    DOI: 10.1007/s11156-021-00964-7
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    References listed on IDEAS

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    Cited by:

    1. Wei Zhang & Xiong Xiong & Guanying Wang & Jing Li, 2022. "The accounting and trading information channels of excess control rights on IPO long-term return in China," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1609-1646, November.
    2. Ma, Yan & Mao, Qian & Hu, Nan, 2024. "To protect or to hide-an investigation on corporate redacted disclosure motives under new FAST act regulation," Emerging Markets Review, Elsevier, vol. 60(C).
    3. Barrington-Leigh, C.P., 2024. "The econometrics of happiness: Are we underestimating the returns to education and income?," Journal of Public Economics, Elsevier, vol. 230(C).

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    More about this item

    Keywords

    IPO prospectus; Misleading information; China;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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