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Risk factor and use of proceeds declarations and their effects on IPO subscription, price ‘fixings’, liquidity and after-market returns

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  • Paul B. McGuinness

Abstract

This paper addresses two important areas of voluntary disclosure for Hong Kong IPOs: (1) The risk factors surrounding a listing entity’s business and offer and (2) an issuer’s planned use of proceeds. Issuers assigning a greater fraction of proceeds to investment (debt repayment) generate higher (lower) subscription rates, price ‘fixings’ and after-market liquidity levels, as well as more (less) robust initial and longer-run returns. Greater enumeration of issue-based risk factors inflates after-market volatility but exerts little influence on other initial pricing characteristics. In contrast, enumerations on business and global risk factors bear strong negative association with longer-run returns. Additionally, risk factor enumeration and debt repayments are increasing in underwriter quality. However, such disclosures exhibit weak connection with state ownership.

Suggested Citation

  • Paul B. McGuinness, 2019. "Risk factor and use of proceeds declarations and their effects on IPO subscription, price ‘fixings’, liquidity and after-market returns," The European Journal of Finance, Taylor & Francis Journals, vol. 25(12), pages 1122-1146, August.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:12:p:1122-1146
    DOI: 10.1080/1351847X.2019.1572023
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    Cited by:

    1. McGuinness, Paul B., 2021. "Board member age, stock seasoning and the evolution of capital structure in Chinese firms," International Business Review, Elsevier, vol. 30(3).
    2. 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).
    3. Hai Long & Xiaochen Lin & Yu Chen, 2021. "Why the Operating Performance of Post-IPO Firms Decreases: Evidence from China," JRFM, MDPI, vol. 14(9), pages 1-15, September.

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