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

Paul B. McGuinness

The European Journal of Finance, 2019, vol. 25, issue 12, 1122-1146

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.

Date: 2019
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DOI: 10.1080/1351847X.2019.1572023

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