Risk Factor Disclosure of IPO Firms and Its Impact on IPO Underpricing——Empirical Evidence from U.S. Listed Chinese Firms and Domestic A-shares

Abstract

Abstract: This paper compares the risk factors disclosure of IPO firms between China and America from two levels which are institution and company practice. On this basis, this paper tests whether the disclosure of risk factors reduces IPO underpricing. We firstly find that compared with U.S. listed Chinese firms, domstic A-share listed companies generally display a lower level of risk factors disclosure, tend to be more homogeneous in the disclosure of risk factors and pay more attention to risk information integrity and financial risk. This means that the motivation of domestic A-share listed A-share companies that disclose their information is to meet regulatory requirements. Secondly, the risk disclosure of U.S. listed Chinese firms significantly reduces IPO underpricing, whereas the risk disclosure of domestic firms has no significant influence on IPO underpricing. Thirdly, in Chinese Growth Enterprise Market with higher degree of information asymmetry, the risk disclosure has the effect of reducing IPO underpricing. Lastly, the risk disclosure of U.S. listed Chinese firms significantly reduces spread, whereas the risk disclosure of domestic firms has no significant influence on spread. The conclusions of this paper can help improve risk factor disclosure level and the further reform China's IPO system.

Key words: risk factor disclosure, IPO underpricing, information asymmetry, U.S. listed Chinese firms

Li Xuan, Bai Yunxia. Risk Factor Disclosure of IPO Firms and Its Impact on IPO Underpricing——Empirical Evidence from U.S. Listed Chinese Firms and Domestic A-shares[J]. Management Review, 2021, 33(7): 29-42.

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