Expected Performance and Risk Countermeasures Disclosure of IPO Firms
- BAI Yunxia, LI Xuan
- BAI Yunxia (Tongji University, 200029)LI Xuan (Guizhou University, 550025)
Based on the data of risk factors disclosure in IPO prospectuses from 2007 to 2012, this paper investigates whether Chinese IPO firms use risk countermeasures disclosure to manage and manipulate information. We find that one of the motives for IPO firms to disclose risk countermeasures is to cover up the decline of expected performance. After controlling the firm's underlying risks, the worse the IPO firm expects its performance to be, the more it will disclose about risk factors including countermeasures. Furthermore, the relationship between the expected performance and the risk countermeasures disclosure is stronger among the firms with strong motive for information manipulation and low reputation of the underwriters, so this proves our hypothesis of information manipulation motive behind risk countermeasures disclosure. In the expansibility analysis, we find that, the disclosure of risk countermeasures significantly reduces IPO underpricing, short-term stock return volatility and long-term market returns, which indicates that in the short term, the disclosure of risk countermeasures reduces the investors' perception of the risks of IPO firms, but in the long run, investors can see through it and punish the firms for information manipulation through risk countermeasures disclosure. The conclusions of this paper have important implications for regulating the risk factors disclosure of listed companies and the information disclosure of IPO firms in the context of registration system in China.
JEL：D24, D81, G12
- Risk Countermeasures, Expected Performance, Information Manipulation, IPO Firms