Measuring Misleading Information in IPO Prospectuses
Review of Quantitative Finance and Accounting, forthcoming
42 Pages Posted: 7 Nov 2020 Last revised: 24 Feb 2021
Date Written: September 10, 2020
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: Suggested Citation