Are investors influenced by the textual information in IPO prospectuses? Examining IPO pricing based on textual information management

Abstract

In the context of China's registration-based capital market reform, the quality of information disclosure in initial public offering (IPO) prospectuses has become increasingly critical. This study investigates the relationship between textual disclosure characteristics and the likelihood of broken IPOs, using a dataset of companies listed on China's STAR and ChiNext markets from 2009 to 2022. The analysis reveals that certain prospectus textual features are significantly associated with IPO pricing outcomes. Furthermore, the effects of these disclosures are influenced by firm-specific factors such as agency costs and audit practices and external factors such as analyst attention. These moderating influences indicate that investors' interpretation of disclosed information is shaped by disclosure content and context. These findings provide empirical support for regulatory efforts to enhance the quality and transparency of information released in the IPO process. This study also contributes to a better understanding of how disclosure practices affect IPO efficiency in emerging capital markets.