ESG and the Pricing of IPOs: Does Sustainability Matter

58 Pages Posted: 9 Jun 2021 Last revised: 4 Jan 2023

Date Written: June 4, 2021


The IPO process involves a large amount of information delivered to the public through different means. Information frictions may be what causes most of the underpricing. Socially conscious investors supposedly use the ESG criteria to check for potential investments. Thus, we argue that disclosing more ESG information in the S-1 prospectus diminishes the information asymmetry between the company and the investors, positively benefiting the companies’ financial performance, here in terms of lower underpricing and evaluation. Based on a sample of 783 U.S. IPOs we compute a text-based measure of ESG dislosure in IPOs. Our results show that (a) the amount of ESG disclosures in the S-1s is negatively associated with IPO’s underpricing and Tobin’s Q; (b) this effect is primarily driven for the underpricing by the ESG as a whole, as well as for the price revision. Our analyses show instead that when considering Tobin’s Q investors value at most the governance part of sustainability.

Keywords: sustainability, ESG, IPOs, underpricing, price revision, Tobin’s Q, disclosure, financial communication

JEL Classification: G14, G24, G30

Suggested Citation

Fenili, Alessandro and Raimondo, Carlo, ESG and the Pricing of IPOs: Does Sustainability Matter (June 4, 2021). Available at SSRN: or

Alessandro Fenili

ET.Group ( email )

Via Lambro 4
Milan, MIlan 20129

Carlo Raimondo (Contact Author)

Università della Svizzera italiana ( email )


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