Initial Public Offerings: Dealing with the Disclosure Dilemma

22 Pages Posted: 5 Oct 2021 Last revised: 30 Mar 2022

See all articles by Aswath Damodaran

Aswath Damodaran

New York University - Stern School of Business; New York University (NYU) - Leonard N. Stern School of Business

Daniel McCarthy

Emory University - Department of Marketing

Maxime C. Cohen

Desautels Faculty of Management, McGill University

Date Written: October 5, 2021

Abstract

The “going public” process is under strain, as the characteristics of companies going public, and the investor base investing in those companies’ IPOs, has changed. In addition to companies going public with more unformed business models, many of these companies market themselves to prospective investors through incomplete and sometimes misleading disclosures summarizing the quantity and quality of users, subscribers, or customers they have, and other related metrics, in addition to more conventional accounting metrics. The rules that govern IPO-related disclosures, though, reflect a different era, and as disclosures become more bloated, they are also becoming less informative. In this paper, we aim to remedy these issues, balancing the costs of disclosure to companies against the benefits they can provide to investors. We argue that one way to make disclosures more informative, while also slimming them down, is to tailor disclosure requirements to the company type. We also advocate for triggered disclosures, where claims made by “going public” companies on their value, ranging from potential market size to user/subscriber numbers, trigger a more standardized collection of “base disclosures” specific to those claims.

Keywords: disclosure, customer metrics, initial public offerings

JEL Classification: M41

Suggested Citation

Damodaran, Aswath and McCarthy, Daniel and Cohen, Maxime C., Initial Public Offerings: Dealing with the Disclosure Dilemma (October 5, 2021). Available at SSRN: https://ssrn.com/abstract=3936750 or http://dx.doi.org/10.2139/ssrn.3936750

Aswath Damodaran (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0340 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.damodaran.com

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Daniel McCarthy

Emory University - Department of Marketing ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

Maxime C. Cohen

Desautels Faculty of Management, McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

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