Risk Disclosure and Performance: An Evidence from Indian IPOs

Abstract

Using a unique regulatory framework for IPO pricing in India, which allows us to estimate underpricing, we answer if risk disclosure section explains underpricing in the Indian settings. The current study uses both legitimacy theory and agency theory to create testable hypotheses. Our main findings are as follows. We document that disclosure of risk increases underpricing (i.e., offer price being lower) in the premarket and lowers aftermarket underpricing (i.e., the first-day closing price is lower). Collectively, we show that disclosure influences underpricing of IPOs.