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Does prospectus AE affect IPO underpricing? A content analysis of the Chinese stock market

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  • Guo, Haifeng
  • Wang, Ying
  • Wang, Bo
  • Ge, Yuanjing

Abstract

Using content analysis, we study the effects of prospectus AE (referred as Form S-1 in U.S.) on the IPO underpricing. We measure the content of prospectus AE by IPO word lists, which we compiled on the basis of the Loughran-McDonald Sentiment Word Lists and the Chinese stock market. The results show that number of words in the prospectus AE is negatively related to underpricing while the percentage of negative and uncertain words in the prospectus AE have significantly positive impacts on underpricing. We also find that IPOs with more words or high levels of negative (uncertain) text in the prospectus AE are more likely to underperform in the future. In further analysis, we find that the effect of prospectus AE on underpricing is more prominent when investors have better ability of information processing, in lower market sentiments or the contents of prospectus AE are more optimistic and definite.

Suggested Citation

  • Guo, Haifeng & Wang, Ying & Wang, Bo & Ge, Yuanjing, 2022. "Does prospectus AE affect IPO underpricing? A content analysis of the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 1-12.
    • Handle: RePEc:eee:reveco:v:82:y:2022:i:c:p:1-12
    DOI: 10.1016/j.iref.2022.06.001
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