A Research On The IPO Risk Factors Information Disclosure

With the rapid development of the capital market in China, companies and investorspay more and more attention to the primary market of the securities issuance. An IPOprospectus, the carrier of information transmission, is the key of the mandatory informationwhich must be disclosed by legal requirements. The risk factors section is an important partof the information as the core content of the prospectus what the investors focus on.Although the risk factors in prospectus are very complicated, the principal componentanalysis (PCA) can simplify these complicated problems and reduce the influence ofvarious factors’ overlap on the results. So we can get more scientific and reliableconclusion by using PCA. At the same time, the IPO prospectus describes the informationin text contents; what can we do to change them to numbers and make a good combinationof qualitative and quantitative analysis is the key to test the IPO prospectus effectively. Wechoose to use content analysis to solve this problem effectively.According to content of the risk factors announced in the IPO prospectuses, weclassified a large number of risk factors, extracted the principal components, and analyzedthe relationships between the principal components and the post-IPO changes of financialindicators and thus examined test on the quality of the announced IPO risk factorsinformation with the methods of content analysis, principal component analysis andregression analysis. The results indicated that generally the contents of the risk factorswere not adequate and accurate enough and were of limited value to help investors inmaking investment decisions. We can further improve the quality of the IPO informationdisclosure through enhancing the transparency of preparing and approving the prospectuses,and strengthening social overseeing and ex post supervision.