Valuation uncertainty risk compensation and IPO prospectus earnings forecasts

Abstract

Younger, riskier, less credible firms do not voluntarily supply initial public offering prospectus earnings forecasts. Nondisclosure increases valuation uncertainty risk, thus necessitating higher first-day underpricing and long-run performance as compensation.

Acknowledgements

We would like to acknowledge the comments and suggestions of Tom Smith, Peter Clarkson, Stephen Taylor, Terry Walter, Janice How, Harjeet Bhabra and Philip Hoang as well as seminar participants at Australian National University, La Trobe University, the Accounting & Finance Association of Australia and New Zealand conference and the Multinational Finance Society conference. We thank Howard Chan and Daniel Yeoh for excellent research assistance.

Notes

¹ See Houston et al. (2004) and Kim and Ritter (1999).

² The month 1 stock return, ar _i,t, is the industry-adjusted return for IPO i from the end of the first day's trading to the end of the first month.