The Effect Of Risk Factors Disclosure On IPO Underpricing

The company’s prospectus is the first step to go to public, but also the investors access to company’s first-hand information. Normally, the prospectus by offering detailed enterprise potential risk, business model and financial statement disclosure to investors often caused widespread media coverage. Quality of information disclosure in the prospectus of listed companies determines the efficiency of resource allocation on capital market. The prospectus information untrue, not only make the economic losses to the investors, and severely shaken their confidence. The information in prospectus not only limited to the data, there are a lot of language information. The potential risk factors were mostly through language description for qualitative analysis. Compared to data information, the content and form of language information in the disclosure is more flexible, not within the scope of the independent audit. It will not be able to ensure that the auditor to effectively supervise the language part of the prospectus, which will attract the issuer to "processing" or "manipulation" the language information, to make it express the intention of self-interest, so as to realize the purpose of attracting investors, become a kind of means, thereby affecting investors to evaluate the value of the company. And investors often lack professional knowledge, and when the valuation of IPO companies, often in the informational disadvantage. So easily cause investors error estimates, thus make the IPO pricing frequently appear unreasonable phenomenon.Overview of domestic and foreign research results, we found that the study of the “IPO underpricing” has matured, the theorists on the study of “risk factors disclosure” are also more and more attention. Compared abroad, the domestic for content analysis in the use of the financial sector is still in its infancy, mostly just ready-made theory achievements abroad, and not considering domestic practical theoretical background and practical significance. Using content analysis to study the relationship between risk factors disclosure and stock returns is almost blank. As a result, the formation applicable to the study of a system of risk factors disclosure, to explain the IPO underpricing start a new perspective, it becomes very important.This paper chooses IPO prospectus’ risk factors disclosure section in 2009-2012 over the past four years in Shanghai stock exchange and Shenzhen stock exchange of 499 companies as the research object. Using tone analysis to analyze and measure all kinds of tones in information disclosure, and quantified information disclosure quality. Then further in a diverse environment, using the linear mixed model, the correlation of using degree of the different tone and the first day of IPO returns, long-term performance to carry on the empirical analysis, the results show that: the risk factors disclosure in the prospectus often has a higher positive tone or strong tone. And the positive tone, strong tone have a positive effect on IPO underpricing. And negative tone, weak tone have a negative effect on IPO underpricing, but it had no effect on long-term performance. According to the results, respectively from the issuer, intermediary agencies, regulators and investors point of view, risk factors, to improve and perfect risk factors disclosure made policy recommendations.