The impact of risk factor disclosure on the initial return of IPO companies amidst a pandemic
-
DOIhttp://dx.doi.org/10.21511/imfi.21(4).2024.01
-
Article InfoVolume 21 2024, Issue #4, pp. 1-10
- 188 Views
-
37 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The capital market has increasingly become a pivotal avenue for enterprises seeking additional capital for expansion or operational enhancements. In raising funds through an Initial Public Offering (IPO), the company must publish its risk disclosure in the prospectus. Therefore, this study aims to investigate the impact of risk disclosure on the initial return of Indonesian companies undergoing IPOs during the pandemic. Using data from 136 out of 164 companies that went public between 2020 and 2022, sourced from the Indonesian Stock Exchange and company websites, the study employs the ordinary least squares method to estimate the impact of risk disclosures on initial returns during the pandemic. The findings reveal that external and overall risk disclosures significantly influence IPO initial returns. Specifically, Indonesian investors were particularly attentive to external and overall risks when evaluating IPOs during the pandemic. This heightened concern suggests that comprehensive risk disclosure can affect investor behavior and financial outcomes for companies going public in uncertain times, highlighting the importance of transparency in risk communication to support investor decision-making and market stability.
- Keywords
-
JEL Classification (Paper profile tab)G11, G14, M13
-
References33
-
Tables4
-
Figures0
-
- Table 1. Sample criteria
- Table 2. Description of data
- Table 3. Analysis of correlation
- Table 4. Result of estimation
-
- Afik, G., & Makarova, S. (2021). Determinants of underpricing initial public offerings (IPOs) of BRICS companies. BRICS Journal of Economics, 2(3), 83-106.
- Albuquerque, F., Monteiro, E., & Rodrigues, M. A. B. (2023). The explanatory factors of risk disclosure in the integrated reports of listed entities in Brazil. Risks, 11(6), 108.
- Bernstein, S., Korteweg, A., & Laws, K. (2017). Attracting Early-Stage Investors: Evidence from a Randomized Field Experiment. The Journal of Finance, 72(2), 509-538.
- Campbell, J. L., Chen, H., Dhaliwal, D. S., Lu, H., & Steele, L. B. (2014). The information content of mandatory risk factor disclosures in corporate filings. Review of Accounting Studies, 19, 396-455.
- Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39-67.
- De Oliveira, C. H. F., Rodrigues, C. L., & Jucá, M. N. (2023). Determinants of IPO’s Underpricing: A Systematic Review. Contemporary Economics, 17(3), 252-274.
- Ding, R. (2016). Disclosure of downside risk and investors’ use of qualitative information: Evidence from the IPO prospectus’s risk factor section. International Review of Finance, 16(1), 73-126.
- Elghaffar, E. S. A., Abotalib, A. M., & Khalil, M. A. A. M. (2019). Determining factors that affect risk disclosure level in Egyptian banks. Banks and Bank Systems, 14(1).
- Filzen, J. J. (2015). The information content of risk factor disclosures in quarterly reports. Accounting Horizons, 29(4), 887-916.
- Filzen, J. J., McBrayer, G. A., & Shannon, K. S. (2023). Risk Factor Disclosures: Do Managers and Markets Speak the Same Language? Accounting Horizons, 37(2), 67-83.
- Fulghieri, P., García, D., & Hackbarth, D. (2020). Asymmetric information and the pecking (Dis) order. Review of Finance, 24(5), 961-996.
- Grover, K. L., & Bhullar, P. S. (2021). The nexus between risk factor disclosures and short-run performance of IPOs – evidence from literature. World Journal of Entrepreneurship, Management and Sustainable Development, 17(4), 907-921.
- Grover, K. L., Singh, P., & Bhullar, P. S. (2022). Risk factor disclosure pattern of Indian initial public offering prospectuses: A content analysis. International Journal of Electronic Finance, 11(1), 1-15.
- Guo, Y., Wang, T., Seng, J. L., & Hung, S. S. (2017). The effect of disclosure patterns of risk factors in prospectus on the relation between strategic alliances and underpricing of biotechnology IPOs. Journal of Applied Business Research, 33(3), 509-520.
- Gupta, K. K., Raman, T. V, Deol, O. S., Gupta, K. K., Khushboo, G., & Kanishka, G. (2021). Impact of risk disclosures on ipo performance: evidence from India. Finance: Theory and Practice, 25(6), 128-144.
- Habib, M. A., & Ljungqvist, A. P. (1998). Underpricing and IPO proceeds: a note. Economics Letters, 61(3), 381-383.
- Handayani, R. S., & Handayani, P. (2022). The effect of risk disclosure and investors’ attention on IPOs initial return of Indonesian companies. Assets: Jurnal Akuntansi Dan Pendidikan, 11(1), 36-50.
- İlbasmış, M. (2023). Underpricing and aftermarket performance of IPOs during the Covid-19 period: Evidence from Istanbul stock exchange. Borsa Istanbul Review, 23(3), 662-673.
- Jamaani, F., & Alidarous, M. (2019). Review of theoretical explanations of IPO underpricing. Journal of Accounting, Business and Finance Research, 6(1), 1-18.
- Katti, S., Lawrence, E. R., & Raithatha, M. (2023). Risk disclosure in IPO advertisement and the quality of the firm. Journal of Financial Markets, 64.
- Liu, Y., Cheng, P., Ou Yang, Z., & Wang, A. (2020). Information asymmetry and investor valuations of initial public offerings: Two dimensions of organizational reputation as stock market signals. Management and Organization Review, 16(4), 945-964.
- Lyle, M. R., Riedl, E. J., & Siano, F. (2023). Changes in Risk Factor Disclosures and the Variance Risk Premium. Accounting Review, 35(3), 327-352.
- Mehmood, W., Rashid, R.-M. M., & Tajuddin, A. H. (2021). A Review of IPO Underpricing: Evidences from Developed, Developing and Emerging Markets. Journal of Contemporary Issues and Thought, 11(1), 1-20.
- Plummer, L. A., Allison, T. H., & Connelly, B. L. (2016). Better Together? Signaling Interactions in New Venture Pursuit of Initial External Capital. Academy of Management Journal, 59(5), 1585-1604.
- Siwach, P., Kumarb, P. R., & Guptac, V. (2023). Effect of underwriter’s reputation on performance of small business IPOs. Finance: Theory and Practice, 27(6), 54.
- Spence, M. (1974). Competitive and optimal responses to signals: An analysis of efficiency and distribution. Journal of Economic Theory, 7(3), 296-332.
- Stiglitz, J. E. (2002). Information and the Change in the Paradigm in Economics. American Economic Review, 92(3), 460-501.
- Svetek, M. (2022). Signaling in the context of early-stage equity financing: review and directions. Venture Capital, 24(1), 71-104.
- Tao-Schuchardt, M., Riar, F. J., & Kammerlander, N. (2023). Family firm value in the acquisition context: a signaling theory perspective. Entrepreneurship Theory and Practice, 47(4), 1200-1232.
- Wasiuzzaman, S., Yong, F. L. K., Sundarasen, S. D. D., & Othman, N. S. (2018). Impact of disclosure of risk factors on the initial returns of initial public offerings (IPOs). Accounting Research Journal, 31(1), 46-62.
- Yusup, A. K. (2022). Underpricing or overvaluation? Theoretical review of initial public offering phenomenon. VNU Journal of Economics and Business, 2(4).
- Zou, G., Cheng, Q., Chen, W., & Meng, J. G. (2020). What causes the IPO underpricing? New evidence from China’s SME market. Applied Economics, 52(23), 2493-2507.
- Zou, G., Li, H., Meng, J. G., & Wu, C. (2020). Asymmetric effect of media tone on IPO underpricing and volatility. Emerging Markets Finance and Trade, 56(11), 2474-2490.