Measuring Misleading Information in IPO Prospectuses

Review of Quantitative Finance and Accounting, forthcoming

42 Pages Posted: 7 Nov 2020 Last revised: 24 Feb 2021

See all articles by Wenbo Ma

Wenbo Ma

Southern University of Science and Technology

Xinjie Wang

Southern University of Science and Technology

Yuan Wang

Concordia University, Quebec

Ge Wu

University of Richmond

Date Written: September 10, 2020

Abstract

Newly public firms may provide misleading information about their business plans in their initial public offering (IPO) prospectuses. Using textual analysis, we develop a simple measure of such misleading information based on the difference between the emphasis placed on business lines in the main textual description and the corresponding information from the accounting tables. We examine our measure of misleading information using a sample of 1878 IPOs in China from 2010 to 2019. We find that the degree of misleading information is greater when firms find it more difficult to get regulatory approval for an IPO. Furthermore, the amount of misleading information is greater for firms with higher leverage and more segmented businesses. We also find some evidence that the stock returns of firms which present a greater amount of misleading information are lower.

Keywords: IPO Prospectus, Misleading Information, China

JEL Classification: G10, G14

Suggested Citation

Ma, Wenbo and Wang, Xinjie and Wang, Yuan and Wu, Ge, Measuring Misleading Information in IPO Prospectuses (September 10, 2020). Review of Quantitative Finance and Accounting, forthcoming, Available at SSRN: https://ssrn.com/abstract=3695107 or http://dx.doi.org/10.2139/ssrn.3695107

Wenbo Ma

Southern University of Science and Technology ( email )

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Xinjie Wang (Contact Author)

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Yuan Wang

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Ge Wu

University of Richmond ( email )

102 UR Drive
Richmond, VA 23173
United States

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