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The Information Content of IPO Prospectuses

Review of Financial Studies, Vol. 23, p. 2821-2864, 2010

AFA 2010 Atlanta Meetings Paper

54 Pages Posted: 15 Jan 2009 Last revised: 22 Jan 2012

Kathleen Weiss Hanley

Lehigh University - College of Business & Economics

Gerard Hoberg

University of Southern California - Marshall School of Business

Date Written: October 15, 2009

Abstract

Using word content analysis, we decompose information in the IPO prospectus into its standard and informative components. Greater informative content, as a proxy for pre-market due diligence, results in more accurate offer prices and less underpricing because it decreases the issuing firm’s reliance on bookbuilding to price the issue. The opposite is true for standard content. Greater content from high reputation underwriters and issuing firm managers, through Management’s Discussion and Analysis, contribute to the informativeness of the prospectus. Our results suggest that pre-market due diligence and disclosure by underwriters and issuers can serve as a substitute for costly bookbuilding.

Keywords: IPOs, Disclosure, Underpricing, Initial Public Offerings, Book Building, Due Diligence, Equity Offerings

Suggested Citation

Hanley , Kathleen Weiss and Hoberg, Gerard, The Information Content of IPO Prospectuses (October 15, 2009). Review of Financial Studies, Vol. 23, p. 2821-2864, 2010; AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1327171

Kathleen Weiss Hanley (Contact Author)

Lehigh University - College of Business & Economics ( email )

Bethlehem, PA 18015
United States

Gerard Hoberg

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

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