The effect of pre-IPO risk disclosure on IPO underpricing

Abstract

My thesis analyzes the effect of pre-IPO risk disclosure on IPO underpricing with recent IPO data in the Nordic context. My main hypothesis is that more comprehensive risk disclosure decreases underpricing by mitigating information asymmetries and valuation uncertainty.

I construct four different risk disclosure metrics to measure the amount of risk disclosure. I find that the relative frequency of risk-related words suggests lower underpricing with statistical significance at the 5 percent level. Similar results without statistical significance are found when examining the frequency of negative words. However, the size of the risk factor section and the number of risk factor subsections do not seem to predict any underpricing. My results are approximately in line with prior literature related to the issue.