Risk information disclosure effect on IPO pricing efficiency: Evidence from China

Xiang Gu, Xiqiong He and Hao Liu

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: This study proposes a novel method to measure idiosyncratic risk disclosure: text similarity, using a pretrained model. The study explores the impact of risk information disclosure on initial public offering (IPO) pricing efficiency. Based on 2295 prospectuses of Chinese IPOs from 2007 to 2022, we find that risk information disclosure positively affects IPO price-to-earnings and negatively affects IPO underpricing. The mechanism reveals that risk information disclosure reduces information asymmetry and decreases investors’ heterogeneous beliefs, which elevates IPO pricing efficiency. Notably, the impact is more pronounced for IPOs with lower underwriter and audit reputations, alongside optimistic investor sentiment. Furthermore, higher risk disclosure quality is associated with better long-term market performance. Finally, registration system reform improves IPO price-to-earnings, significantly reducing IPO underpricing. These findings underscore the importance of advanced risk disclosure for fostering an efficient and orderly capital market.

Keywords: Prospectus; Risk information disclosure; Price-to-earnings ratio; IPO underpricing (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025006550

DOI: 10.1016/j.iref.2025.104492

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