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- Title
Does risk disclosure in prospectus matter in ChiNext IPOs' initial underpricing?
- Authors
Hussein, Monica; Zhou, Zhong-guo; Deng, Qi
- Abstract
Using a unique and hand-collected dataset, we investigate the impact of the risk factors disclosed in the prospectuses on the initial returns for ChiNext IPOs. After controlling for the market-, firm- and offer-specific characteristics, we identify several significant risk factors that include "policy changes on taxation or government subsidy", "higher depreciation and/or amortization due to proposed capital expenditures", "ongoing litigation or lawsuit", and "piracy or trademark infringement". Concerns for ongoing litigation risk seem to be most important as the risk affects both the opening and closing price returns positively and significantly, indicating risk compensation through deep underpricing. The other three risk factors only affect the closing price return. Similar to the impact from the ongoing litigation or lawsuit risk, the trademark infringement risk affects the closing price return positively. On the other hand, the risks associated with possible policy changes on taxation or government subsidy and higher depreciation and/or amortization due to proposed capital expenditures have negative impacts on the closing return. In line with our conjecture of a short-term equilibrium, none of the risk factors disclosed in the prospectuses are found significant for the 21st trading day (monthly) initial return.
- Subjects
FISCAL policy; TRADEMARK infringement; CAPITAL investments; SUBSIDIES
- Publication
Review of Quantitative Finance & Accounting, 2020, Vol 54, Issue 3, p957
- ISSN
0924-865X
- Publication type
Article
- DOI
10.1007/s11156-019-00812-9