Disclosure of Intended use of Proceeds and Stock Market Performance of Initial Public Offerings (IPOs)

Abstract

Using a wide range of statistical tests including the bootstrapping simulation and non-parametric tests, and hand-collected data for 245 Thai IPOs from the Stock Exchange of Thailand and the Market for Alternative Investments, we highlight the role of use-of-proceeds disclosure in understanding IPO pricings and long-term performance of IPOs. Our results show that the levels of use-of-proceed disclosure affect Thai IPOs’ security prices. We also find that investment purposes tend to reduce ex-ante uncertainty and IPO underpricing, and have a good signal for positive returns in the long-run. In contrast, firms that earmarked the IPO proceeds to pay off their debts are more likely to discount their IPOs and hurt their performance in the long-run. Furthermore, we provide evidence that the issuing size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Interestingly, the information regarding the government ownership has a positive effect on three-year abnormal return after going public. Our results are robust, having been subjected to a wide range of sensitivity checks.